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Why is external competitiveness important in compensation?

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External competitiveness is important in compensation because it helps employees get fair compensation. As long as a business knows that there is another firm willing to pay a worker more for their services, they will adjust the salary accordingly. The corporation will try as much as possible to match the compensation offered by other employers in the market so as to attract and retain the best workers. If the company cannot offer the same benefits as their competitors, they will give the employee non-financial incentives.

Why salaries are competitive?

In a competitive market, firms cannot afford to lose their best workers because it will affect their profitability and output. For example, if a company wants to hire a new worker, it has to create a budget for recruitment and training. To avoid such inconveniences, the company prefers to do its best to please the current employees.

Competition also helps new businesses know the market wage rate. If a market has two or three players, it may...

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