How To Motivate And Retain Your Employees With Competitive Pay
Attracting employees is one thing; motivating and retaining them is quite another. Most workers move on from businesses sooner than you’d like, all thanks to sub-par pay and conditions. This post is meant as a primer. We discuss how you can leverage competitive pay to improve productivity and reduce staff churn. While much of what we discuss will be simple, you’d be surprised how few businesses implement these ideas.
What Is Competitive Pay?
Competitive pay is the amount of money you need to offer talented employees to encourage them to remain in your organization long-term. Most economists would define it as being slightly more than the going market rate – a way to outbid the competition. Let’s say, for instance, that the market rate for a data analyst is $20 per hour. A company that pays $25 per hour is entering the market above the general rate to secure additional benefits, such as reducing turnover. Employees in highly paid positions are less likely to move on, just in case they lose the wage premium they get from their current employer. Competitive pay can also include benefits and perks. Staff, for instance, are more likely to stay with a firm that offers flexible working hours and plenty of time off at the weekend or remote work.
How To Use Competitive Pay To Motivate Employees
You might expect that all you need to do to motivate employees with competitive pay is put the money in their bank accounts every month. But that’s not quite everything there is to it. Yes, paying them well is a source of motivation by itself, but there are other ways of initiating it and getting your strategy right. Simply paying more than your competitors won’t necessarily put you in the best position.
Discover Whether You Are Offering Competitive Rates
The first step is to find out if you are actually offering competitive rates or not. Market situations change all the time, particularly in the labor market when the dynamics can be highly fluid. For instance, the rates you pay in 2023 might have been competitive in 2020, but inflation may have eroded their real value. It’s possible that hires you took on several years ago are on less real pay today than their counterparts in other firms. You should also consider the compensation you offer against various data reports and surveys. Individual jobs can become more and less valuable over time, depending on supply and demand conditions.
AI programmers were not in high demand 20 years ago, so their pay was low. Now demand is astronomical, so their pay is high. You’ll need to take this factor into consideration by either examining the data or taking surveys of average remuneration. Getting payment wrong can result in all sorts of ills for your firm. You could fail to attract any talent into your pipeline at all, or you could wind up wasting money on wages unnecessarily.
The key is to do your research and check all your data.
Consider The Equity Of Your Pay Structure
you’ll want to consider whether your pay structure offers employees the right incentives to do a good job. Remuneration should have a certain “equity” about it, meaning that people feel fairly compensated. First, you’ll want to consider your internal pay structure. Does the money everyone receives at the end of the month make sense for their skill, position, and responsibilities? Are senior managers getting paid more than entry-level clerks? If not, why not? Next, you’ll want to think about how you structure pay to reward those who put in the most valuable work. Experience is a factor, but you’ll also want to consider how you can pay people for high performance. For example, you might want to install a points-based system that lets you evaluate employees at the end of the month. Finally, you’ll need to consider whether pay is consistent. You want to ensure employees get paid roughly the same every month, or a little bit more. This approach helps them live more stable and viable financial lives, instead of going through wild swings and cycles.
Think About Total Rewards
As mentioned above, you’ll also want to think about the total awards you offer your employees. Headline gross salary might be low, but you may offer them additional perks, such as a company car or gym memberships, that are worth a lot of money. Total rewards can include-
- Career development opportunities
- Recognition and awards
Employers can pull all these levers to make themselves more attractive to the people who work for them. Well-treated employees are far less likely to want to leave.
Set Up Effective Pay Systems
Regardless of your pay structure, you also need to set up effective pay systems to motivate and retain employees. People are less likely to want to stick around if payment becomes unreliable or you fail to pay them on occasion. Paying employees a fixed salary monthly is usually pretty simple. Payroll professionals simply set up standing orders from the business accounts to employees, or automate check printing. However, if you need to track employee hours it can be more complicated. Pay tends to fluctuate significantly from one month to the next. The trick here is to use software systems that will take account of these issues for you. Checks should print automatically, based on the total time spent working, multiplied by the agreed hourly rate.
Communicate Your Pay Philosophy
Another tactic you can use is to communicate your pay philosophy to workers. It’s often a good idea to tell them why you are paying the amount you do. Mostly, the answer is simple: employees get paid what they are worth to the organization. However, ideally, you should avoid broad generalizations like these and focus on the specifics of why you are paying them a certain amount. You can do this with a rough back-of-the-envelope calculation, or you can provide them with more detailed data on their performance and what it’s worth to the firm. Don’t be afraid to offer colleagues significant bonuses for exceptional performance. There will always be people in your organization prepared to give up their time and energy to move your enterprise forwards.
Adjust Pay Regularly
You should also adjust your pay practices regularly to reflect best practices. As market conditions change, you should review how much your people are worth and what you can offer them. At times, you’ll need to move defensively and raise pay to prevent other firms from poaching your talent. But in other situations, you may find yourself gaining more power over employees, especially if other firms are making their equivalents redundant.
So what have we learned from this article? Essentially, we’ve discovered that it is possible to motivate and retain employees with pay, but it requires going about it correctly. Ideally, you should be:-
- Finding out if your enterprise offers competitive rates
- Ensuring that your firm’s pay structure is equitable and makes sense
- Considering the total rewards you offer employees in your pay packet, not just upfront gross wages
- Communicating your pay philosophy, telling stakeholders why you offer the wages levels that you do
- Setting up effective systems that make it easy to accurately track pay and ensure everyone gets paid the right amount
- Adjusting pay regularly to adapt to changing circumstances
In general, firms need to be cautious of changes in the labor market. Conditions don’t always remain consistent, and the amount that you need to pay to keep a professional in your company changes year after year.