You’ve seen the company’s search ads and heard the pitch from your recruiters; you offer competitive wages to qualified candidates.  That’s got to be a strong hook for attracting talent, right?

Big deal.

Your pay structures are regularly updated based on competitive market trends, so the opportunities you offer employees are aligned with your retention and motivation strategies, right?

Not enough.

Most employees presume that their company is already meeting (or aspiring to meet) the goal of competitive pay.  Companies routinely advertise the practice (“we offer competitive wages”) and candidates in return expect this of potential employers.  But what happens when your goal of offering competitive pay is finally achieved?  Are employees grateful?  Can companies rest in their efforts to attract, motivate and retain?

I’m afraid not.

What Doesn’t Happen

What doesn’t happen when you offer competitive pay is that your recruitment problems do not magically disappear, your employees won’t be satisfied and your compensation programs have achieved little more than being average – and isn’t that a “C” grade in school?  Is that how you want to position your compensation strategy?

As far as aspirations go, it’s only middle-of-the-road.

If your company does pay “the going rate,” that still means that approximately 50% of the companies out there are paying more than you.  That’s what average gets you, with half doing more and half doing less.  Is that what your company aspires to achieve?  You won’t see that fact pointed out in recruiting campaigns.

No one quits for less money – so all you’ll hear through the grapevine is about how so-and-so left and is now making more somewhere else.  And as it’s human nature to hear only what supports your own notion  –  your employees won’t pay attention to the broader rewards package, just the points that confirm their opinion that your company isn’t paying enough.

The only way to avoid this scenario is becoming the premier paying company in your market or industry – and can you afford that cost?

Lest we forget though, it’s important to differentiate between having a salary structure (grades, salary ranges and midpoints) that provides competitive rate “opportunity” and actually paying employees at those rates.  Some describe this as whether the company is “walking the talk.”  I recall a client who was boastful of the fact that their salary ranges were continually adjusted to mirror market rates, but was later embarrassed to discover that their actual pay practices fell well below midpoints.  The company said one thing by their pay structure, but did another by the way they implemented that structure.

For their own part, employees relate to the pay they receive, not the midpoint of a salary range or other such declared “opportunity.”  For them the company’s “competitiveness” can be more illusion than fact; especially if they’re experienced and have been with you for awhile.  Thus the company needs to keep its focus on actual vs. opportunity pay.

Why Don’t Employers Pay The “Going Rate?”

Typically it is not an organization’s strategy to avoid paying out competitive rewards, but more likely a series of practices that have evolved over time.

• Some candidates will accept a lower employment rate than should normally be paid for their knowledge and experience, and managers tend to view this as a cost savings.  Though it is more like putting a skeleton into the closet and hoping it doesn’t jump out at you down the road.  One day these employees will change their minds.

• Once you’ve started down the slippery slope of paying some employees below market rates the practice is soon compounded by internal equity.  Managers don’t want to pay similarly qualified new people more than existing employees, so the new hires can be offered below market pay.

• Pay-for-performance systems have a hard time keeping up with the increased marketability of employees.  A minimally qualified employee hired at the minimum rate will gain knowledge and experience (and thus marketability) faster than the company’s annual merit system can recognize.  This is compounded when you have to hire a qualified worker and discover that the market requires you to pay more than what you’re paying your more experienced employees.

So, what’s the answer?  Management won’t agree to become the premier payer in your area, so you should consider instilling more flexibility into your pay practices.  Consider targeting key jobs (highly skilled, difficult to replace, mission critical, etc.) and make sure those jobholders are well paid for the market.

And don’t forget to pay attention to your customer-facing employees.  To many a customer, those folks are your company.

Other positions you have deemed less skilled and more easily replaceable could continue with your “competitive opportunity” strategy.  This approach is akin to ring-fencing key talent, protecting them against poaching while recognizing and rewarding those with the most potential impact on your business.

Bottom line?  Be careful when you claim how your company provides competitive wages.  You may not be correct, but if so – big deal.