In a NutshellCompetitive pay is compensation that is comparable to or better than current market value for a position. It can vary by industry, geography or other factors. You can always try to negotiate salary offers to ask for more competitive pay.
If you’re searching for a job, you’ll probably come across the hiring buzzwords “competitive pay.” While these two words sound enticing for people who want to level up their earning potential, it’s not always clear what it really means.
To help you understand this term and what it means for you, we’ll review the definition of competitive pay, details on what competitive compensation packages may include and tips for how to ask for competitive pay.
- What is competitive pay?
- 5 factors that determine competitive pay
- What’s in a competitive compensation package?
- How to ask for more competitive pay
What is competitive pay?
When it comes to compensation, the label “competitive” refers to pay that is comparable to or better than the market value of a position.
In the human resources field, a competitive salary is the average market rate for the role plus a percentage of that rate. This percentage may vary depending on a company’s pay philosophy.
It also means that compensation is competitive in relation to what other companies might offer for a similar position in the same industry and geographic area.
5 factors that determine competitive pay
The market value of a position can fluctuate depending on a variety of factors, such as industry and location, so it’s important to note that pay may vary, and it isn’t necessarily a specific amount.
Here’s a breakdown of the factors that can affect compensation.
1. Job title
When you’re trying to determine a competitive salary, the role itself will often have a baseline for market rates. Use reliable industry resources such as the Bureau of Labor Statistics to assess compensation rates for your role.
Once you have an idea of the average market rate, use this number as a guide to evaluate salary competitiveness. Remember that salary ranges can differ based on the role, so make sure you’re referring to an accurate job title when doing your research.
2. Experience level
Most positions will offer pay that corresponds to either your experience level or the experience necessary for the job. Whether the role is entry-level, mid-tier or higher often determines the experience level required and the associated salary range.
For example, entry-level positions usually require zero to little experience and generally pay less than mid-tier positions that may require several years of experience.
Your education and practical skills all factor into your experience level, and the demand for your skill set should be kept in mind when determining a salary that is competitive for you.
The industry your desired job is in has the power to affect the standard of competitive pay. Lucrative industries like tech and finance may have more competitive rates compared to other industries in order to secure top talent.
If you aren’t set on a particular field, try applying to the same position in multiple industries to see how compensation packages may differ. For people who have a high salary as a goal, research earnings by industry and apply to various companies to find the most competitive pay for you.
Location also affects the average market rates of a position. Places with a higher cost of living and higher minimum wages may compensate more to account for these factors.
For the most accurate salary and wage information, try tailoring your research to a specific geographic area. The BLS produces data on wages based on region, state and many metropolitan areas.
5. Job availability
Much like market prices vary based on supply and demand, salary does as well. When a job is in high demand but lacks supply, pay is likely to be more competitive.
On the other hand, if a position is in low demand, but there are plenty of qualified candidates, this will likely decrease the market rate of the position.
If you’re interested in a hiring pool that works in your favor, check out this list of the fastest-growing jobs in the U.S.
What’s in a competitive compensation package?
Competitive pay doesn’t refer to just salary — it actually encompasses the entire compensation package. Learn more about other potential benefits such as paid time off, insurance, retirement options and other bonuses.
Paid time off
The amount of paid leave a job offers is an important part of any compensation package. Time off from work is important for your health and wellness, and it’s also necessary if something changes in your personal life or if you get sick.
Vacations can also be a good way to set boundaries at work to prevent burnout. When you can balance your life and work, you can more easily maintain your performance and work toward achieving your personal and professional goals.
Health insurance is another important part of a compensation package. Employees tend to rate health insurance as one of the most desirable employee benefits, according to Robert Half’s annual salary guide, so it’s no surprise that it is a prized aspect of competitive pay.
Companies can also include retirement plans as part of their compensation package. Depending on your employer and your options, you may be able to contribute part of your paycheck toward a 401(k), 403(b) or Thrift Savings Plan to start saving for retirement.
Your employer may also match a certain percentage of your contributions. If so, consider taking advantage of this by contributing the maximum amount allowed each year so long as you can afford it.
When you’re evaluating a job offer, ask about other compensation benefits such as bonuses, stock options and profit-sharing. Here are a few examples.
- Signing bonus
- Performance bonus
- Relocation bonus
- Stock options
- Profit-sharing plan
- Supplemental budget (e.g., for wellness or career development)
How to ask for more competitive pay
Most hiring managers expect to negotiate compensation. Remember that competitive compensation is determined by a variety of factors, including ones that are unique to you as an applicant. Leverage this information and try negotiating for the pay you want with these steps.
1. Pick your priorities
When entering into a salary negotiation, know your priorities for compensation. A higher starting salary may be a major negotiation point in many salary discussions, but depending on budget constraints or company pay scales, it may not be possible.
If this is the case, think about what other forms of compensation might be valuable to you. You may be more successful asking for a one-time signing bonus instead of a higher salary or might decide that stock in the company is more in line with your financial goals.
2. Back up your request with evidence
Asking for a higher starting salary or better benefits may not be enough. To successfully negotiate better pay, you’ll likely need to present a strong argument. Use the research you gathered about the market rates for your particular position, geographic location and industry as evidence in your negotiations.
Remember that competitive pay is, at the very least, equal to that average market rate or better, so use this number to guide what you ask for. Craft an argument for why you’re worth a higher salary or better benefits by highlighting your achievements, skills or experience that will bring value to the position.
3. Politely stand your ground
HR professionals expect salary negotiations, and even if they have the wiggle room, they may respond by saying that the position’s budget is for the original offer’s amount. When this happens, it’s OK to politely push back and ask them to explore your request.
If you’re not sure how to push back in a professional way, try saying the following:
“I understand that the position is budgeted for [insert amount], but based on the value that my skills and experience can provide to the team, I’d appreciate the opportunity to explore a higher salary of [insert desired amount].”
After saying this, they may let you know that’s all they can offer or they could come back with an offer that’s better than the original.
Now that you know what competitive pay means, it’s time to make a financial plan. Since pay can vary based on your professional strengths, consider investing in extra education or certifications that could increase your future salary.