How to Conduct a Competitive Salary Analysis

It's not unusual for payroll to account for 50 percent or more of a company's operating budget. This sizable expense – plus the desire to attract the best talent – is an incentive for companies to offer their employees competitive wages and salaries.

In addition to offering a great company culture, solid benefits and opportunities for growth, you'll need to offer competitive (but not the highest) pay to attract and keep the best workers. For help with setting pay rates, businesses turn to labor market data, or surveys, from government and private sources.

Review Your Current Pay Rates

Visit websites like,, and to find out what your competitors are paying in your state and local area. You can also visit the U.S. Bureau of Labor Statistics's Occupational Outlook Handbook to find national figures.

Develop Detailed Job Descriptions

Labor market data should include pay ranges based on job descriptions, rather than job titles. Titles are not always aligned with wages and salaries, which makes them less reliable than job descriptions for a competitive salary analysis.

For instance, an employee with the title “assistant manager” at one company might earn $50,000 a year, while another employee with the same title at a different company might earn $80,000. Location, industry, company size or duties might account for the pay difference.

A detailed description of a communication manager’s duty might be: “Plans and conducts quarterly town hall meetings for staff, followed by Q&A sessions with senior management.”

Analyze Labor Market Survey Statistics

The “labor market” is the going rate of pay for jobs. Factors involved in setting pay rates include job locations; descriptions; categories, such as professional, administrative and managerial; sectors, such as government, public and private; and the supply of and demand for workers’ skills. Companies provide much of the information in labor market surveys.

Set Maximum and Minimum Rates

Base your maximum rates on if and how much a position increases your company’s worth. For sales, business-development and other income-generating jobs, earnings should cover salaries. For instance, a ​$75,000​-a-year salesperson who brings in ​$200,000​ in revenue is covering her salary.

Set rates high enough to accommodate future raises and bonuses. Otherwise, employees end up at the top of their pay ranges and become ineligible for increases. Don't forget to consider the benefits you offer, advises Entrepreneur magazine. Some employees will value health insurance and a 401(k) match more than a job that pays ​$10,000​ a year more without one or both of those benefits.

If your job openings fill quickly and you have few problems retaining valued employees, immediate and massive changes to your pay rates might not be necessary. However, labor market fluctuations and job seekers’ demands make pay adjustments necessary over time.

Know Your Legal Requirements

As you are conducting a wage analysis, remember that you must comply with state and federally mandated minimum-wage requirements. You will also be required to meet ay union contract agreements if your company is unionized. However, beyond these restrictions, you decide what wage rates to pay. If you are not sure whether your compensation rates are legal, consult an attorney.