What Does Competitive Pay Mean [The Dark Truth Behind This Phrase]

Only in job listings and car sales is the phrase “competitive” accepted, competitive pay, competitive price. Imagine if a candidate answered with “competitive expectations” to questions about their salary range. Or imagine if you told your mortgage lender, bank, and utility company that you would simply make competitive payments on your bills each month.

No one would dream of doing those things, yet employers continue to use the phrase “competitive pay” in many of their job listings.

Now I’ve been at the hiring table for quite a few years. I’ve worked directly with hundreds of employers and indirectly with hundreds more through my consulting business. Today, I’m going to take you behind the scenes of what competitive pay really means and how you can navigate job listings with this phrase.

Disclaimer: This article is based on my experience with US-based companies. There are different cultural norms about discussing salary in different parts of the world. If you’re not US-based, this article may not apply to you.

What Does Competitive Pay Mean

The internet will tell you that competitive pay means an employer is offering a salary equal to or slightly exceeding the industry standard in your geographic area. I’m here to tell you that’s a lie.

I’ve been in compensation discussions with hundreds of hiring managers. What they really mean when they say competitive pay is this.

Competitive pay means that the hiring manager compared their pay range to something else and it’s equal to or greater than that number. It simply means they compared it to something.

They could have compared that to two job postings they saw online. They could have compared it to some obscure internet source like Glassdoor, or even a salary guide from their local staffing agency. They could have compared it to the salary of the last person they hired five years ago. None of which may produce a “competitive salary” based on the internet’s definition.

Most companies I’ve worked with don’t rely on a scientific data-backed process at all.

What Do Competitive Compensation Packages Include

Don’t assume employers are referring to only base pay when they talk about competitive pay. Most employers I’ve spoken with who use this phrase refer to total compensation.

They may include things like health insurance, paid time off, retirement plans, equity, signing bonuses, relocation assistance, stock options, profit-sharing, bonuses, commissions, tuition reimbursement, wellness reimbursements, and other things.

Often, competitive pay refers to total pay, but there is no one size standard, so beware it could mean total comp or base salary.

If you’re in doubt, ask. You could say something like this.

“When you say competitive pay, are you referring to base pay or total compensation? What do you include in total compensation?”

Why Do Companies Say This Instead of Listing the Pay Range

It’s frustrating to job seekers when companies don’t list the salary range. It’s frustrating to recruiters who waste their time talking to people who are way outside any acceptable range. So why do companies do this? Here are some of the reasons I’ve seen.

The pay isn’t competitive

They think (incorrectly so) that they’ll sell the job in the interview and you’ll buy it anyhow. This rarely works out in the end for either party.

They don’t know what competitive is

Many companies don’t have the resources and access to data to determine (accurately) what competitive pay is for their industry and location in the current job market. Most larger organizations have entire teams devoted to compensation analysis, but smaller orgs don’t.

They haven’t determined a salary band yet

I’ve worked with several employers who use the hiring process to determine their salary bands. In other words, they’re still exploring what they might pay someone. They haven’t compared their options to anything yet. Instead, they’re comparing salaries based on what qualified candidates tell them their salary expectations are. Candidly, this is probably one of the best ways to determine market value. They are asking the market.

Pay inequity

Many employers are still willing to pay new hires more than what some of their current employees are making. This makes it difficult to advertise a salary range because a current employee may see it. It’s a bad practice that’s encouraged many people to jump jobs every couple of years.

They don’t know how to articulate the value of total compensation

This is the rarest situation out of all of these. Sometimes an employer doesn’t know how to articulate the value of their total compensation package and is afraid if they only list base salary, they will lose out on qualified applicants. They’re not trying to be malicious or secretive. They just don’t know how to communicate their offering.

The future outlook

The good news is that salary transparency is becoming normalized as several states have passed laws requiring it. States such as California, Washington, Maryland, Rhode Island, Nevada, Connecticut, and Colorado all have salary transparency laws on their books. Some local governments also require employers to disclose salary ranges in job listings.

Many employers have also caught on to the fact that they are more likely to receive high-quality applicants when they disclose pay ranges. They are more likely to have applicants who are more serious and new hires who don’t quit after two months because both parties were looking for the same thing.

Slowly, more and more companies are ending their “competitive pay” usage.

How Employers Should Determine What Competitive Pay Is

If you’re an employer reading (or just a curious person), here are the things you should consider when determining your competitive pay salary bands.

Location

This is probably the most obvious item on my list. Different costs are associated with different locations. Whether people like it or not, things like the cost of living and added payroll expenses are a significant factor.

Industry

Your industry may be more competitive than others and because of that, you may have to pay higher salaries or vice versa. Government regulations such as prevailing wage impact what you have to pay employees. When you compare salaries, consider the industry.

Job Level

When reviewing other salaries, don’t just look at the job you’re hiring for. Look at the salaries of those above and below the job for insights too. You’ll want to land somewhere between those two numbers.

Supply and Demand

When tech was hot and hiring, salaries soared. When the bubble burst, people were shocked at the lower salaries offered. This is just how things work.

While I don’t advocate taking advantage of people and short-term thinking will catch up to you with terrible consequences, market forces do matter. If you can’t find the right person, you may have to consider that there is a small supply of the skills you’re looking for and high demand. You can either raise your pay range or give up on some skills you were hoping to find in your next hire.

Why Offering Real Competitive Pay Matters

This isn’t a topic that should only come up during a hiring need. Pay should be evaluated every 6 to 12 months if you want to stay competitive.

Having real competitive pay makes employees excited to start a new job, it keeps them engaged, it reduces costs, and attracts specialized talent.

If you don’t list your competitive pay (in dollars), I can assure you that you are losing the competitive candidates and top talent that you want to hire.

How to Negotiate a Competitive Salary

This article wouldn’t be complete if I didn’t leave you with some sound advice about how to negotiate when the listing says competitive pay. Here are the steps you should take and when you should take them.

Know the Market

Before you do anything, you need to know the job market. The best way is to talk to people in the industry doing the job you’re after. But aside from that you can use tools like Payscale and others. Just be careful because I find the data to be slightly inflated on many of these sites. Payscale usually is one of the more accurate ones.

Don’t just research the salary for your job title, but also research the job title of the person you might report to and the person that may report to you or be a step down in the job family ladder. This will give you a more accurate range. You can count on the employer not paying you more than the person you report to and no less than the person below you (in most cases).

Talk Ranges Early

While you don’t want to talk about salary in every conversation, you do want to tackle the subject early on, most likely in a prescreen interview. There’s a good chance that the recruiter will tell you their salary range and confirm you’re ok with that or ask for your range, but if not, don’t be afraid to bring it up. And always have a range, not a static number.

Ask For a Definition

If the other person doesn’t bring up pay, ask them to define what competitive means. Simply ask, “What does competitive pay look like for this job?” And don’t play games. Be upfront about your salary expectation range as well.

If they mention that their definition of competitive pay includes total compensation, you can ask about what makes up total compensation at their company. They may not share details at this stage, but they’ll at least be able to tell if it includes things like insurance, PTO, or commissions.

Ask If You Can Negotiate

If you get a job offer and aren’t happy with it, ask if you can negotiate. Yes, it’s that easy. They will either say yes and you can proceed to the next step or they will say no and you’ll have to make a decision.

Use the Interlocking Range

If you’re serious about negotiating fairly, you need to understand some terms such as anchoring and interlocking ranges. These aren’t unique to salary negotiations. Before you come back with a number you need two things. The first is the interlocking range. This is a number that interlocks with their range and yours.

For example, if the employer gave you an upfront range of $70,000 to $85,000 and you gave them an expectation range of $80,000 to $90,000, your total range is $70,000 to $90,000. The interlocking range is between $80,000 and $85,000. That’s where you most likely want to counter. There are expectations, but for most, this will apply.

Use Leverage

It’s great to have an interlocking range, but you also need a justification for asking for an increased salary. The employer has already assessed the situation and determined the risks and value you might add based on your interviews to be the number they offered. So coming in empty-handed isn’t going to get you far.

You’ll need to make the case for increased profits or reduced costs based on the value you bring. You’ll need to cite evidence of that from your interviews and previous experience as well.

What you shouldn’t do is ask for more money because it’s “market value” or because someone else is willing to offer you more. That’s not the best way to start a new relationship.

What Does Competitive Pay Mean Recommended Reading

How to Negotiate a Sign On Bonus

Ghosted After Salary Negotiation

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Cole Sperry has been a recruiter and resume writer since 2015, working with tens of thousands of job seekers, and hundreds of employers. Today Cole runs a botique advisory firm consulting with dozens of recruiting firms and is the Managing Editor at OptimCareers.com.