What is a Competitive Salary?

Many companies, when posting an advertisement, will mention that they offer a “competitive salary”, perhaps DoE (depending on experience). Have you truly thought about what it means, or are you just using a phrase everyone uses?

Its quite vague to say a salary is competitive; no employer is going to say they pay a non-competitive or below market wage. And what do we mean by competitive anyway? For example, one of my past employers was located in downtown Seattle, as were most of the employees. Rents for a nearby 2 bedroom apartment were upwards of $2500, and food was at a premium. A competitive salary there needed to take into account the high costs of living. In Kent, the costs are much lower, with mortgages on 3+ bedroom houses going for the same as those Seattle rentals, and although car costs are usually more, the overall number is significantly lower.

A competitive salary is based, first and foremost, on market metrics. So your first step is to go looking for metrics. There are a number of places that will happily sell you data, and it can be very good data. There are also a number of places that will give you data for free. Why not always choose the free data, you ask? Because there are some extra complicating factors that might cause you some problems. Your free data may not be localized – it may be an aggregate of all jobs of that title in an entire region, rather than a specific area. Workforce Explorer, for example, has excellent job data for Washington State. However, its data includes every person with that title in the state – there is no sorting for seniority or location.

Another complicating factor of free data is that they may not have the job title in their database. I have dealt with this scenario for years with one of my clients. They are a small boutique company with a very complicated set of job descriptions and they want to make sure they have 'competitive salaries' for their employees. So I do an annual market survey for them. The survey begins with my reviewing the job descriptions to make sure they remain accurate and then I locate the standardized jobs that make up different aspects of the jobs. For example, a Junior Research Analyst has a description that includes Market Research, Statistics, and a small amount of Residential and Commercial Real Estate Appraisal. I carefully weight each job according to how much time is typically spent in each area (Market Research = 40%, Statistics = 30%, 15% each for the appraisal aspects). Then I add and divide and get a final number that accurately reflects the uniqueness of the job title and the metrics of the market.

Finally, the free data may not reflect the uniqueness of the employees history. You would want to treat a Market Researcher with 10 years of experience differently than one with only 2 years, right? Some free data, similar to how they treat location data, may not reflect training or seniority accurately.

Creating a “competitive salary” is not an easy task, but it is a very important one.

©2016, Lisa McSherry, DawnspringHR. All rights reserved.

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