Competitive Pay Policy

Companies competing in different industries among each other do not only oppose one another while trying to sell their good or services, but also they compete for skilled and experienced employees. How a company chooses to attract future employees and keep people working for them is determined by the competitive pay policy. This policy is generally based on three marketing conditions while recruiting new workforce, those conditions are: a) availability of qualified workers in the market, b) the aggressiveness of other employers searching for the same type of workforce; c) company’s abilities in recruiting new people (financial situation, other benefits it can provide).

Most of the times in modern business world, company’s competitive pay policies are based on the percentile levels of the targeted market. Generally companies choose market’s 50th percentile or median policy which allows an organization to stay competitive and at the same time not spend too much money or benefits for attracting employers. However, some companies do choose to stay above or below this median point in competitive pay system; it may be caused by company’s decision to focus mainly on one of the three earlier mentioned compensation types. Often such companies get exhausted in providing too much of particular sort of payment of benefit, and this results in employees’ dissatisfaction.

The trick, that every company that wants to be a competitive employer has to learn, is to understand the concept of balance in identifying the best competitive pay policy. The notion of total reward model is the most reasonable one for the employers to consider if they want to attract, retain, and motivate, for further success, employees. This approach is based on the principal of providing an employee with compensations that is money for the provided services. The second type of reward consists of benefits such as income protection, welfare, health, different capital accumulation programs. Another important part of this system is represented by working condition, which at first glance seems to be irrelevant, but in reality they are essential to employees, especially developmental opportunities, company’s culture and performance recognition. Most of the time organizations do not focus on three of the enumerated elements in equal proportions while designing their pay policies. Usually it happens that the compensation or the salary is emphasized as a major reward for the work done, and other benefits are less attractive than those of the competitors.

As already was mentioned the total reward model in the appropriate to company’s situation balance would be the best answer in recruiting and maintaining employees. However there are number of situations to be considered and different types of businesses to be taken into consideration. For instance a company only starting its operations should emphasize log term incentives in order to attract people willing to participate in the creation of a new successful business. Of course in such case a company will not be able to pay high salaries, as opposed to big companies of the same industry, but it has to promise, say, a 75th percentile in long term payments and benefits, so that workers have motivation to stay with this company. Another example of different pay system approach is when we view an already established and mature company, generating a lot of cash and yielding great profits. In this instance the human resource manager should target the median in salaries in the relevant recruiting situation. Such companies usually encourage employees to work for an annual cash incentive or a premium, which is based on annual performance reviewed against company’s standards. In the previous case with developing company, the long term incentives was the only attractive feature to potential employees, here, on the other side, such benefits are granted to executives or highly valued employees. Non-financial benefits in well developed companies are targeted at the median level of the relevant industry, and company’s performance culture aims at staying stable at the present management level.

Although the external parameters are very important in identifying company’s pay policy, the individual capabilities of the employer should be precisely evaluated as well. It can be done through the interviewing process, when hired and by work performance throughout first three months of work or first year. The payment level can be determined taking into consideration company’s market position, internal equity, and budget limitation. The total reward system should consider personal qualities as well, only then it will be balanced and most appropriate from the point of view of recruiting market requirements, company’s profit, and employee’s satisfaction. The combination of all these elements will results in a successful employer with happy staff.