During an economic downturn, maximising your return on investment (ROI) is more important than ever before. To achieve this goal, selecting the right HR tools is vital — because these can help retain talent and drive the performance of your team at the same time.   

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The best HR leaders prove their worth — and that of the tools they use — through strategic decisions and effective reporting to board members and stakeholders. One of the most effective decisions HR leaders can make when it comes to maximising ROI is using market compensation to back up their compensation strategy.    

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Understanding Market Compensation

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What is market compensation, anyway? This method of setting pay grades for specific roles involves collecting pay data from other companies — a.k.a the market — to inform compensation decisions. Once you’ve collected data, the board and HR can decide if you want to match market data by paying comparable or average wages, lead the market by paying a higher more competitive wage, or lag the market by offering a wage that’s lower than average. 

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Often, companies will use a combination of these depending on factors including the state of the market and how easy or difficult it is to fill specific positions. But one thing that’s always vital is collecting accurate and up-to-date market data in the first place.   

This market compensation data should also feed into your overall compensation philosophy. Connected to your overall compensation strategy, a compensation philosophy is essentially a mission statement that focuses specifically on how your compensation decisions feed into your overall company culture and values. Without 

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Once you’ve decided to set your pay grades using a market compensation strategy, the next step is deciding where to collect your data from.

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At this point it’s vital to remember that not all data is good data!

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While it might be tempting to rely on salary reviews from places like Glassdoor, bear in mind that these self-reported, unverified results aren’t always accurate, something that’s stated in their Terms of Use. Equally, results from Google can vary wildly and won’t necessarily be from reliable sources.

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For example, if you’re looking to hire a data scientist in Berlin, Glassdoor suggests the average salary is €65,000.But other results on the first page of Google vary from as low as €55,621 to as high as €112.497.     

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Using data like this to set your market compensation won’t ultimately help attract top talent, build trust or promote retention, because it’s based on inaccurate results.    

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Building a Business Case for Market Compensation

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Being able to justify the return of any investment is important, and luckily market compensation has a strong business case. Compensation is often a company's largest expense, so tools that enable salaries to be set competitively will create significant savings.

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Fair compensation doesn’t only help drive savings, but it’s also key to employee satisfaction. When your team feels like they’re being paid fairly and transparently, they feel happier and more productive at work. 

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Choosing the right HR tools and automating manual processes like trawling through salary data can save you up to eight hours each week — time that can be better spent working to maximise employee satisfaction. 

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Now that employers within the European Union also need to add pay ranges to their job adverts, a structured compensation policy becomes even more important. But the key to knowing how to set and advertise competitive yet fair salaries is knowing what your competitors are offering to candidates. Without reliable data, you won’t know what is below market compensation and what isn’t.  

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To summarise, compensation benchmarking helps save money and maximise your ROI by:

• Saving time and reducing user error
• Attracting and retaining top talent
• Plan your budget in advance 
• Prevent overspending 
• Reduce the risk of government sanctions 

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Communicating Your Market Compensation Policy to Employees

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In a competitive labour market, transparency and fairness are absolutely key. Offering this transparency to potential and current employees means developing an effective and consistent compensation communication plan that clearly explains your decisions. 

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Having a plan (that’s also backed up by accurate market data) means it’s easy to offer rational answers when challenged by a candidate’s expectations. For example, if during a salary review, an employee requests a raise that’s far above market averages, you can objectively show that their overall compensation plan is not only competitive, but has been created with care.

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Evaluating and Updating Market Compensation Plans

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Focusing on transparent and equitable employee compensation is a key trend that’s being driven by employee expectation and a competitive labour market. For long-term success, that means your market compensation philosophy and plan needs more than a one-time ‘set it and forget it’ approach. Conducting regular reviews and evaluations of your policy means employees can see you’re committed to pay transparency and at the same time, you’ll be able to enjoy an impressive ROI.   

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Here at Figures, we’ve done most of the hard work for you. Our benchmarking tool now includes real-time market compensation data collected from across five countries, over 1,000 companies, and 3,464 shared benchmarks.

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That means it’s easier for you to join Figures now to get the most comprehensive EU & UK market data, at your fingertips.

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Looking for more resources, tools and content?

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That's why we created Figures, you don't need to be a compensation expert, we are. With our an all-in-one compensation platform updated in real-time, expert HR and People insights, we want to make your job more efficient and power more fair decisions.

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