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How To Design A Competitive Compensation Package That Attracts Top Talent

How To Design A Competitive Compensation Package Cover


Competitive Compensation Package: 10 Things You Should Know


The job market remains highly competitive, with record numbers employed in the US and abroad. In other words, it’s an employee’s market一which means they can be choosy.

A survey by Pew Research found that, in 2021, 63% of workers who quit their job did so because of low pay.

You must offer a competitive compensation package to attract and keep talented employees.

And it’s not all about pay; the most competitive compensation packages provide a range of benefits and non-financial rewards.

Below are the steps to design a compensation strategy that wows prospective employees.

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Establish a compensation policy


A compensation policy will guide your decisions around salary, benefits, bonuses, and incentives. To create one, you should first look at your business goals.

How will your compensation package help you achieve them?

If your goals focus on growth, you’ll need a package with an attractive salary to draw talent to your business. If your goals focus on profitability, you may offer a lower salary but better benefits.

Your policy should also detail your compensation philosophy. For example, “I want to reward my employees for their hard work.” Or “I want to look after their mental and physical health.”

In addition, you need to answer the following:

Once you’ve finalized your policy, you must communicate it to your internal stakeholders, such as HR and finance, to ensure consistency.


Conduct market research


To ensure your compensation package is competitive and legal, you must research the current job market and labor laws. Ideally, you’ll want to make an offer above the average market rate for your industry.


To ensure your compensation package is competitive and legal, you must research the current job market and labor laws. Average Salary For Full Time Employees In The Us In 2021 By Industry


Data sourced from Image created by writer


Look on free job posting sites to get an idea of the market standard for each position. You could also contact recruitment agencies and look on competitors’ websites to see what salary and benefits they offer.

If you operate in international markets, you’ll also need to research each country’s market rates and labor laws. For instance, you need to know the following:

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Understand employee preferences and needs


Reach out to employees to understand their compensation preferences and needs. For example, you could hold focus groups and send surveys to current and prospective employees.

You aim to discover information such as:

Different age groups will likely have different needs. For instance, Gen Xers are more likely to value retirement and healthcare plans, while Gen Zers may prefer mental health support.

In this scenario, letting employees choose their benefits and rewards from a list might be better.


Define a competitive base salary structure


Next, based on your compensation policy and research, you must determine a base pay package. This could be an hourly, daily, weekly, or monthly rate.

What counts as a competitive pay package will vary by country. For example, in 2022, the average annual salary was $61,900 in the US; in the UK, it was £33,000 (or around $40,000).

Also, you need to determine what the different pay bands will be. It’s best to include a range for each band, such as $40,000-$55,000. That way, you can position employees according to performance, skill, and experience.


Example Salary Bands

Image created by writer


Once you’ve set a salary, it’s worth considering using software to automate the payroll process. Not only can this help ensure you pay employees accurately and on time wherever they are in the world, but it can also support you in meeting local requirements.

If you’re based in the UK, using HR and payroll systems that consider regulations such as MTD or the UK pension scheme is vital. If your company is based in the US, consider looking into state and federal labor laws to ensure you don’t miss anything. You can also track hours, streamline recruitment, and manage employee benefits from a single source of truth.

Plus, with comprehensive analytics and reporting tools, you can make data-driven decisions to improve your compensation package and keep more of your talent.


Design incentive and bonus programs


Incentive plans and bonuses reward employees for working hard and achieving their goals. They usually take the form of extra payments or perks, such as gifts and extra vacation time.

You must set and monitor employee performance metrics to create an annual incentive plan. For example, work efficiency, number of sales, completion time, etc. Then, decide what kind of incentives and bonuses to offer and when.

Some companies give bonuses based on an employee’s skill set or level of experience.

But there are many other types, such as:


Bonus Table 2


Evaluate and enhance benefit offerings


Often, it’s a competitive benefits package that proves most attractive to potential employees.

Here are some ideas for employee benefits:

When choosing which benefits plans to offer, consider what employees want. For instance, according to a report by Benefitfocus, almost a third of US employees want better health insurance options.

Compare the pros and cons of different options, such as HDHP vs. PPO health insurance.

Above all, though, make sure your plan is affordable!


Employer Health Plan Offerings 2018-2022

Image sourced from


Offer non-financial rewards and recognition


There are many examples of non-financial rewards that motivate employees, such as:

One of the most effective一and, inexpensive一ways to reward employees is through recognition.

Showing employees you value them boosts employee engagement and productivity.

So, consider developing an employee recognition plan alongside your incentive and benefits packages.

Praise should be an integral part of your recognition plan.

You can praise employees verbally or set up a digital “praise wall” where employees praise each other. You could also give them their birthday off or celebrate an “Employee of the Month.”


Compensation Toolkit Cta 2


Communicate the compensation package to employees


Once you’ve finalized your compensation plan, you must communicate it to your current and potential employees.

Regarding pay and benefits, it’s best to be transparent. Doing so increases employee confidence and allows them to ask questions.

There are many options for communicating your plan, such as:

Put details about salary, pay structure, benefits, bonuses, eligibility requirements, and so on in your job listings. Also, publish pay bands internally so employees can see a straightforward career pathway一helping you keep them long-term.

You could set up an FAQ page on your website where employees can learn about your plan themselves.


Conduct regular evaluations and adjustments


To tell if your plan is working, you need to evaluate it一which means tracking your KPIs—document employee productivity, new hires, and retention before and after implementing your plan.

You can find this data in your HR and payroll systems.

By comparing the data, you can see whether your compensation package improves your company’s performance. You can also measure your program’s ROI, showing if your package is financially viable long-term.


Share Of Employee Compensation Costs

Image sourced from


In addition, collect feedback from your employees about what they like, don’t like, or don’t use. You can then adjust your package accordingly.

You’ll also need to track any economic or regulatory changes affecting your offering, such as inflation or a higher minimum wage.


Comply with legal and regulatory requirements


Finally, you must ensure your compensation package complies with the employment laws of each country you operate in. For example, in the US, you need to follow laws such as:

If you have employees in the UK, you’ll also need to consider laws such as National Minimum Wage, mandatory pension contributions, and Part-Time Workers Regulations. You can use payslips software to automate payroll and ensure compliance with all relevant legislation. The software automatically calculates all statutory payment types, saving time and reducing errors.

You’ll also get live support from the HR compliance center, helping you keep up with your obligations.



FREE Compensation Toolkit


VIVAHR offers you a comprehensive guide to competitive compensation packages!


Compensation Toolkit



A competitive compensation package is vital for attracting top talent to your business. To retain your talent long-term, you must continuously evaluate and adjust your offering.

You should also get regular feedback to measure the impact on employee engagement and further improve your package.

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