Key points:
- Competitive pay drives retention: Fair compensation is crucial for retaining talent and minimizing costly turnover.
- It's more than base salary: True competitive compensation includes benefits, bonuses, equity, and career development opportunities.
- Structure beats guesswork: Create compensation philosophy, job families, pay grades, and regular review cycles.
- Reliable market data is essential: Outdated salary surveys and vague benchmarking lead to poor compensation decisions.
- Modern tools make the difference: Platforms like Figures provide real-time benchmarking across 520,000+ data points for confident decision-making.
Here’s a statistic that might surprise you: in 2022, 36% of workers left their previous jobs to seek better compensation. That’s more than one in three employees walking out the door because they felt underpaid.
So, what exactly is competitive pay?
Competitive pay means offering compensation that meets or exceeds market rates for similar positions in your industry and location. In short, it’s the best way to attract top talent and keep your best people from looking elsewhere.
But here’s what many companies get wrong: competitive compensation isn’t just about the base salary figure on a job advert. Truly competitive compensation encompasses your entire rewards package – from benefits and bonuses to flexible working arrangements and career development opportunities.
Think of it this way: you’re not just competing on salary. You're competing on the complete employee experience.
In this article, you’ll discover:
- Why competitive pay drives business success (and what happens when you get it wrong).
- The factors that influence what “competitive” actually means in your market.
- How to determine fair compensation using real market data.
- Practical steps to implement a strategy that works for your budget and goals.
Ready to transform your approach to compensation? Let’s dive in.
Why competitive pay is vital for business success
Think competitive pay is just a “nice to have”? Think again. It’s actually one of the smartest business investments you can make.
Talent acquisition advantage
In the current job market, salary consistently ranks among the top factors for job seekers. This is especially true in competitive fields like tech, finance, and healthcare, where candidates often research market rates before interviews.
Here’s the reality: candidates may decline offers that fall below their expectations – even if they love everything else about your company.
Employee retention and engagement
Fair compensation is a great way to attract talent, but it’s also one of the main factors that will keep the people you’ve worked hard to hire.
💡Did you know? Inadequate total compensation is the most common reason for increased employee turnover, according to SHRM's Better Workplaces on a Budget report.
When employees feel fairly compensated, they’re more likely to:
- Remain loyal to your organisation.
- Stay productive and engaged.
- Recommend your company to others.
Regulatory compliance requirements
The legal side matters too. Here are two critical regulations to keep on your radar:
- EU Pay Transparency Directive (June 2026): This will require companies to provide salary information in job postings and report on gender pay gaps across all EU member states.
- UK Equality Act 2010: Already mandates equal pay for work of equal value, regardless of gender. Non-compliance can result in significant financial and reputational consequences.
Reduced recruitment costs
For some unknown reason, some companies think that it’s cheaper to hire new talent rather than give someone a raise, but the truth is that replacing employees typically costs 1.5-2x their annual salary.
When you offer competitive pay, you reduce voluntary turnover and avoid these massive recruitment costs. Less time recruiting means more time focusing on what actually grows your business.
Employer branding benefits
Sites like Glassdoor make compensation practices increasingly transparent. Being known for fair compensation improves your company’s reputation and attracts passive candidates who aren’t actively job hunting.
A strong employer brand also reduces recruitment marketing costs – great candidates will come to you.
However, simply writing “competitive salary” in your job descriptions doesn’t cut it anymore. In fact, it often makes top candidates scroll right past your posting.
Why? Because talented professionals see vague salary descriptions as red flags. Posting "competitive salary" without specifics is like advertising "competitive coffee" in your office kitchen – you could be offering artisan single-origin beans or instant granules that've been lurking in the cupboard for years. Top candidates aren't willing to gamble on which one they'll get.
The case against "competitive salary" on job descriptions shows exactly how this vague language pushes away the talent you want most.
Remember: word travels fast. Treat people well, and they’ll tell others. Undervalue them, and… well, you get the picture.
What factors influence competitive pay?
Understanding what drives competitive pay rates is like learning the rules of the game before you play. So, let’s take a look at the seven most important factors that will shape your choices.
1. Competitors’ compensation practices
Your competitors set the benchmark, whether you like it or not. Other companies in your industry and location create salary expectations that influence what you need to offer.
Smart tip: gathering salary intelligence from competitors helps inform your strategy and prevents you from accidentally pricing yourself out of the talent market.
2. Geographical location
Location can make or break your compensation strategy. The same role might pay £40,000 in Manchester and £55,000 in London – and both could be perfectly competitive.
Take London weighting as a perfect example. Rooted in publicly defined minimum living standards, it provides a baseline for employers to ensure fair payment of their workers. Salary benchmarking helps companies accurately adjust compensation across different regions, ensuring competitiveness while maintaining internal equity.
3. Industry and sector
Some sectors simply pay more than others. Tech and finance typically offer higher compensation due to profitability, growth rates, and specialised skill requirements. Meanwhile, non-profits might offer lower base salaries but excellent benefits and meaningful work.
The bottom line: know your industry’s compensation trends and position yourself accordingly.
4. Job demand and labour market conditions
Supply and demand rules apply to talent, too. Here’s a striking example: in the second quarter of 2022, approximately 442,000 people left their jobs in the United Kingdom – historically the highest number of resignations in over two decades.
This “Great Resignation” happened partly because better-paying opportunities became available due to wage stagnation and a hot job market. When talent is scarce, compensation tends to increase.
5. Required expertise and experience
Specialised skills command premium compensation – it’s that simple. A data scientist with machine learning expertise will earn more than a general analyst. Years of experience and unique capabilities create what we call a “premium for expertise.”
6. Economic trends
Inflation and cost-of-living increases force companies to adjust salaries to maintain purchasing power. During high inflation periods, what seemed like competitive pay last year might feel inadequate now – rather like discovering your “generous” weekly coffee budget from 2020 now barely covers a single oat milk latte.
7. Internal budget constraints
Let’s be realistic – not every company has unlimited funds. The trick is balancing competitive pay with financial sustainability. Understanding these constraints helps you make strategic decisions about where to compete and where to find creative alternatives.
How do you determine competitive pay?
You can’t create a truly competitive pay strategy by guessing – you have to build a structured approach that works for your organisation.
Here’s how to do it:
- Start with your compensation philosophy: Where do you want to position yourself in the market? Will you lead, match, or lag behind competitors? Your answer depends on your industry, growth stage, and talent strategy. A fast-growing startup might lead on equity but lag on base salary, while an established corporation might match across the board.
- Break down the work (job analysis): You can’t benchmark roles accurately without understanding what they actually involve. Break down positions into core responsibilities, required skills, and expected outcomes. This creates solid baselines for market comparisons.
- Create logical groupings (job families): Group similar roles together to create logical compensation structures and clear career progression paths. Your marketing coordinator and content specialist might sit in the same job family, making both retention and recruitment easier.
- Establish pay grades: Create salary ranges for position groups with similar value. This ensures both internal equity (fairness within your company) and external market alignment.
1 – Example of salary ranges for intermediate Sales/Customer Success employees in Paris, France
Pro tip: Salary surveys can provide valuable market data for setting these ranges.
- Think beyond base salary: Remember that competitive compensation includes benefits, bonuses, equity, and perks. Sometimes, a lower base salary with excellent benefits beats a higher salary with poor coverage.
- Set regular review cycles: Markets change, and so should your strategy. Establish a cadence for reviewing compensation (1-2 times per year) to stay current with market shifts and economic changes.
Determining true market rates: the foundation of competitive pay
Reliable market data forms the cornerstone of any competitive pay strategy, yet obtaining accurate, timely information remains one of HR’s biggest challenges.
The market data challenge
Making compensation decisions with outdated information is like trying to navigate with last year’s weather forecast – you might reach your destination, but you’ll likely encounter unexpected storms along the way, arriving soaked to the bone holding a useless sunscreen bottle in your poor, pruney fingers.
Analogies and unpleasant scenarios aside, the truth is that traditional salary data sources often fall short. Industry surveys from firms like Willis Towers Watson and Mercer, while comprehensive, can suffer from significant time lags. By the time the data reaches your desk, market conditions may have already shifted. Job boards and salary review sites face their own limitations: self-reporting biases, limited sample sizes, and inconsistent job matching can skew the numbers considerably.
The consequences? Companies risk losing top talent to competitors who've adapted faster to market changes, or overpaying for roles due to inaccurate benchmarking.
“The biggest challenge with traditional salary surveys isn't just the time lag – it's the false confidence they create,” says Virgile Raingeard, CEO of Figures and former HR leader. “You think you're making data-driven decisions, but you’re actually betting your talent strategy on information that may no longer reflect market reality. That gap between perception and reality is where companies lose their best people.”
So what affects market rates? Ultimately, what constitutes a “competitive” salary varies significantly based on multiple factors, many of which we have already mentioned. These include, but are not limited to, the location of the employee, the company size, industry, funding stage, and growth trajectory.
The Figures solution
Figures transforms this challenge with access to over 520,000 real-time market data points. The platform's sophisticated filtering allows precise comparisons based on job role, level, location, company size, and industry, ensuring you're benchmarking against truly comparable positions (and using the right methodologies, as well).
2 – Example of a Market Data dashboard in Figures with filters for a job type, level, and location
As you can see in the example above, the “Market Data” feature enables targeted filtering, while the “People” dashboard assesses your current team’s market positioning.
3 – People dashboard in Figures showing whether employee compensation is above, on, below, or way below target
Employees receive their own market positioning insights, helping with retention by flagging those at risk due to below-market compensation.
Integration with 30+ HRIS systems streamlines the entire process, ensuring data consistency across your organisation. Plus, as the most secure compensation management platform with GDPR, ISO 27001, and SOC 2 certifications, Figures ensures your sensitive compensation data remains protected throughout the benchmarking process.
With the EU Pay Transparency Directive approaching in 2026, proper market data becomes even more critical. Companies must be able to justify their pay decisions with solid data to avoid discrimination issues and meet regulatory requirements. Figures helps you do exactly that!
Transform your compensation approach with Figures
If you want to create a truly competitive pay strategy, you can't treat compensation like a parking fine – something you grudgingly pay just to avoid penalties. Instead, think of it as a chance to gain a strategic advantage over competitors by attracting (and retaining) the best talent.
Throughout this article, we’ve explored how data-driven decisions, transparency, and structured approaches transform compensation from a reactive necessity into a proactive business driver.
But here’s the challenge: implementing these strategies requires reliable, real-time market data. As market conditions shift rapidly, yesterday’s compensation data simply won’t cut it.
That's where the right tools make all the difference. Figures equips you with everything needed for modern compensation management:
- Real-time benchmarking across 520,000+ data points.
- Structured salary bands that grow with your organisation.
- Collaborative tools that empower managers to make confident pay decisions.
- Compliance-ready modules designed specifically for regulations like the EU Pay Transparency Directive.
"Being able to share the data from Figures and show that it’s against a huge data set increases the transparency and trust behind the decisions," shares Sophie, People Lead at Planes.
While your competitors struggle with Excel spreadsheets and outdated surveys like it’s 2003, you could be making confident, data-backed compensation decisions. Ready to transform your approach to pay? Book a free demo and discover how Figures can revolutionise your compensation strategy.
