External competitiveness is all about how a company pays its employees compared to other companies. In other words, it looks at whether a company’s pay is higher, lower, or about the same as its competitors.
How Companies Approach External Competitiveness
Companies usually think about external competitiveness in two ways:
- Pay Level – This is the average amount a company pays, including salaries, bonuses, benefits, and stock options. A company can choose to pay more, less, or the same as other companies.
- Pay Mix – This is about the types of pay a company gives. Some companies might rely more on bonuses, while others focus on benefits or stock options.
The combination of pay level and pay mix helps companies achieve two main goals:
- Keep costs under control
- Attract and keep talented employees
Keeping Costs in Check
Higher pay levels mean higher labor costs. You can think of it like this:
Labor cost = Pay level × Number of employees
If a company pays more than its competitors, it will spend more to produce the same goods or services. Not every company pays the same for the same job. Companies make different choices depending on their budgets and strategies.
Attracting and Retaining Employees
Pay is also a way to bring in and keep employees.
- Some companies pay more than the market to get the best talent.
- Others pay a bit less but offer other perks or bonuses.
Even inside the same company, pay levels can vary for different types of jobs. For example, engineers may have a different pay strategy than marketing staff.
When you look at total compensation—including bonuses, benefits, and stock options—the picture can be very different from just the base salary. For instance:
- An engineer might earn 2% less than the market if you look only at the base salary.
- But if you include total compensation, they could actually be 30% below what the market pays.
Important Things to Remember
- Companies often have different pay strategies for different groups of jobs.
- How a company compares to others depends on which companies you look at and which types of pay you consider.
- There is no single “market rate” for any job. Salaries vary a lot depending on the company, industry, and job type.
In short, external competitiveness isn’t just about matching salaries. It’s about striking the right balance—keeping costs under control while offering enough compensation to attract and retain employees—all at the same time staying competitive in the market.
