We have all seen those job openings that offer, among other things:
“Competitive pay and benefits package.”
It sounds great of course, who doesn’t want a job that offers a competitive salary, even a higher salary? But it also begs the question: What exactly does a business or human resources department mean when it posts a job that offers a competitive salary, competitive pay, and/or competitive benefits?
So let’s take a look at what competitive pay and benefits really mean and how your small business can offer something along those lines (even if it seems unaffordable).
Competitive Pay and Benefits Overview
There are lots of reasons to own your own small business—you get to be the boss and set the rules, you can follow your vision and passion, and, if you do it right, you get to make a difference in your life, that of your family, and for your employees as well.
Like many, I escaped the corporate world because cubicle nation was a bad fit. I had had it with “idiosyncratic” bosses (sarcasm most intended), odd policies, ridiculous hours and deadlines, unrealistic expectations, and, well, work that didn’t work.
But to paraphrase the Great and Powerful Wizard of Oz, when it comes to big business versus small business, there’s one thing they got that we haven’t got:
Truly competitive pay and benefits.
Say what you will about large corporations, but the truth is that they have money, manpower, expertise, resources, salary ranges, retirement plans, benefits, and compensation packages that most small businesses can only dream of. That of course gives them a competitive advantage, which I suppose is good because they need at least one.
A typical solid salary and benefits package would consist of perks like:
- Competitive pay (we’ll drill down on that next)
- Health insurance, life insurance, vision and dental insurance, etc.
- 401(k) retirement plans, or better, matching 401(k) retirement plans
- Career development
- Flexible work and flexible hours (especially now, especially post-COVID)
The challenge, as indicated, for the small business is that such packages are often above what we can pay. We often cannot afford to match the big boys. What is expected by today’s employee and what can you do? Let’s see.
What is an Actual Competitive Salary?
Competitive pay and benefits are of course the main ways that businesses attract top talent. But what competitive pay means for one job seeker—or business or industry—can be very different than what it means for another. It is a vague term that needs some clarification.
Competitive pay can depend on:
- The market rate of pay (average salary) for similar positions (full-time, part-time, management, hourly, whatever)
- Comparative payscale for that particular type of employee
- Industry standards
- Years of experience and education
- References and job title
- Geographical area
If you really want some averages (which, by the way, change based on all the factors above), here are some from the Bureau of Labor Statistics:
The bottom line is that, for “competitive pay” to mean anything, it must mean that you are paying at or above the prevailing wage for that type of job and job description in that industry and locale. Therefore, if you are looking to offer job seekers and employees alike what truly is a competitive salary, you and your hiring manager need to begin by surveying the landscape of comparable positions.
See what similarly situated people are earning. Make sure to compare salaries by size of business, geographic location, experience levels, educational background, and any other similar factors that you consider relevant and applicable.
Beyond that, you also need to look at your bonus and commission structure. What should your raises look like? If you are looking to be competitive, it of course has to go beyond your starting salary or their base pay. Competitive means competitive. For example, according to Zippia.com, the average bonus last year was 11 percent of one’s base salary for exempt employees.
Do You Have to Disclose Pay in Your Job Listings?
It is important to know that some states require employers to specifically state what the pay will actually be. These include:
California, Washington, Maryland, and Rhode Island: In these states, employers are required to state the pay ranges if a job applicant requests that info, or if an employee is changing roles.
Nevada and Connecticut: In Nevada, the pay range must be disclosed after an interview. In Connecticut, it must be disclosed when requested and when the job is offered.
Colorado: All employers must state in the job posting the wage rate for the job, other compensation available, and benefits offered.
A Great Compensation Package Can Make Up for a Less Competitive Salary
The question remains: What can you do if you cannot compete with the big boys in terms of salary when speaking with qualified candidates?
The good news is that pay is only one reason why people work. According to one recent survey, only about half of all employees said that pay was the main factor when applying for a job.
That's because there are many other reasons why people work: to advance in one’s life and career, to learn new skills, for camaraderie, to make a difference, to be a role model, to feel productive, and so on. The secret for the small business is to tap into these other reasons if offering a top-tier salary is not possible.
Indeed, a competitive compensation package can look many different ways. Oh sure, it would be sweet if you could offer the best salary in the land, but small businesses usually can’t, and so for us mere mortals it helps to know that other options are available.
In the compensation package game, “package” is the operative word. Here are additional things to consider and, to the extent possible, include in your competitive compensation package beyond salary:
If you have more than 50 employees, as you well know, you are obligated under the Affordable Care Act to provide your staff with health insurance.
If that applies to you, a fairly easy way to up your compensation game is to increase the benefits offered under your current policy. For example, you could:
- Cover family members under your policy.
- Pay for more of your employees’ premiums.
- Offer more choices in policies.
- Up the providers covered.
- Give everyone on your team extra coverage, like vision insurance, dental, etc. (or at least the chance to buy in via, say, something like Aflac).
- Offer life insurance. It's a bargain and you get bonus points for doing something for your employees’ families too.
Another option, and one that is both affordable and appreciated, is to give your team some sort of wellness incentive or benefit. It could be:
- A gym membership
- Bicycling-to-work incentives, bike parking, etc.
- Hanging a basketball hoop in the parking lot
- Having a massage therapist come into work once a month
- Coupons towards workout options of their choice
There are no federal regulations mandating that you must give employees certain days off—Christmas for example (although, if you don’t, you are a Scrooge for sure!).
Most companies give newer employees major holidays off, usually totaling 10 or 11 days a year. And that’s on top of additional paid time off for vacation or personal time. According to the Bureau of Labor Statistics, the average amount of paid time off given to workers in the U.S. is 10-14 days.
But, Covid changed a lot of things and one of them has to do with time off. Employees got used to working from home, being treated like adults, and making their own schedules. That’s not going to change any time soon.
A new trend is to give staff members a lump sum of time off per year. It could be a certain number of hours, or days, whatever. They can then use that time however they see fit—as personal days off when needed, or sick time, or vacation time or whatever. It's their choice.
Keep in mind, however, that there may be applicable local, state, and federal laws around family and medical leave, military leave, wage and hour restrictions, and so on. So be sure to speak with your lawyer or HR person about whatever paid time off (PTO) plan you look to implement.
Companies that desire to be competitive will offer, at a minimum, a 401(k) retirement plan. While generally, this is not a legal obligation, it is interesting to note that California has now mandated that all businesses with five or more employees must offer a retirement plan to their employees. Similar laws exist or are being put into effect in several places, including in CO, CT, IL, MD, MA, ME, NJ, NY, and OR (read more here).
The real question is whether you can afford to match employee contributions (or whether you even want to). According to UpCounsel.com, matching works out like this:
- 10 percent of employers match 6 percent of annual compensation
- 41 percent match between 0 and 6 percent, and
- 49 percent do not match at all
Since so many small businesses often cannot match, you can really stand out by doing so. It might soften the blow to know that whatever you match is tax deductible.
Giving employees stock options in the company is a winner in two ways:
- First it is a real, usually valuable, tangible benefit
- Second, it gets your team to be invested—literally—in the business
When people have skin in the game, they are more committed, more passionate.
Flexibility and Creativity
For the prototypical small business, this option is often the best, and the most realistic. No, maybe you can’t give stock options, but you can make your office a great place to work. Here are some ideas:
- Offer flexible schedules.
- Give people their birthday as a paid day off.
- Take the team out to a ballgame for no reason.
- Become a pet-friendly workplace.
- Become a family-friendly workplace.
Competitive Pay Means Competitive
Competitive pay and benefits are one of those great-sounding, yet wish-washy terms that says a lot, and nothing, at the same time. For the entrepreneur, what it really means is that you offer your team the best you possibly can, in exchange for them giving you the best they can.
If you don’t, they won’t.
But conversely, if you do, they will. And that’s a true win-win–and what really makes you competitive, fat salary or not.