Compensation Management Software: Inform Your Strategy and Streamline Your Process

Use compensation management software to help determine competitive employee salary and compensation rates, inform your strategy, and streamline your process.

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Note: This story was last updated January 31, 2023

Are you paying your employees an appropriate salary? Low pay was one reason a reported 63% of employees left their jobs in 2021.¹ Without a good compensation management software solution, determining the appropriateness of your employee compensation plan can be difficult.

Perhaps you’re starting a new business or organization, and you’re hiring your first employees. Or maybe you’re expanding operations and adding new positions. Or you might have recently lost good talent to the lure of other companies offering better employee compensation.

In any case, those charged with workforce management should be concerned with paying employees fairly. This means adopting effective employee compensation management practices.

Compensation management is a process for attracting new talent, reducing employee turnover, and boosting performance by competitive pay and benefits. To achieve this, employers or their human resources personnel must correlate compensation with job-specific market rates. It’s not as easy as it may sound, but with compensation management software it gets easier, more efficient, and more effective.

In this article, we’ll define what a compensation management solution is and how you can benefit from it. Whether you’re seeking new talent or to better compensate your existing staff, utilizing compensation management tools will help to promote pay equity and a good compensation plan.

What is compensation management software?

Compensation management software is a planning system that helps employers, managers, and human resources personnel to streamline data and budget-planning. (Some companies hire a Certified Compensation Professional for the role.) With the right tools and information, they can better assess and refine company compensation strategies. This enables them to develop competitive employee compensation packages. Those might include benchmark salary ranges, investment opportunities, bonuses, insurance coverage, and other valuable benefits or employee rewards.

Automation, integrations, and other compensation software features help HR professionals and compensation managers save time, operate more efficiently, cut costs, and more.

Why bring data analytics into your pay process?

When you hire new employees, you are starting a foundational relationship. Your organization will be built on the work of your staff. So hiring the right people under the right circumstances is vital to your company’s health, growth, and stability.

In order to attract the right people, you must offer the appropriate salaries or wages. This means that you need good data and a skilled employee to analyze it. If you offer too low a salary, you likely won’t succeed in your talent acquisition efforts. Why would top performers work for you if they can do the same job for more money elsewhere?

One of the best places to start the pay-analysis process is with salary benchmarking. Salary benchmarking is a process to determine the market rate for each position within the organization. The person charged with compensation management reviews all the company’s job descriptions. They research jobs with similar responsibilities at other companies and compare the salaries.

Salary data and other compensation benchmarking intel on competitors’ pay, job descriptions, locales, education, experience, and more offers valuable insight. Having gathered this information, compensation specialists can conduct a fuller compensation analysis.

A good compensation manager will be considering your employee payroll budget and longer-term goals to help develop balanced yet competitive compensation packages. If your pay is too high, you’re likely spending more than you need to, which isn’t cost-efficient. You might also be setting unrealistic expectations for pay raises in the future. That could create employee dissatisfaction, poor engagement, and high turnover. Using standalone compensation management software or similar compensation management solutions can help small or midsize businesses up their proverbial games.

How to choose the right compensation management software

Generally speaking, there are 2 types of compensation management systems: free salary comparison websites, and more sophisticated tools for purchase. There are many benefits to investing in option #2, the more comprehensive compensation management software.

Many free salary comparison websites offer job listings and allow employees to self-report salaries and employer ratings. HR professionals often pay attention to these sites because they influence public opinion about their companies and may also impact recruits’ decisions about whether or not to join them.

However, their salary comparison tools may not be the most accurate or reliable. When employees self-report their salaries, this means:

  • The accuracy of the data is dependent upon the honesty of the reporters.
  • The data is incomplete. Only employees who choose to participate have their salaries included. Those who are satisfied with the company and its compensation probably aren’t perusing job sites, much less spending time reporting.
  • They don’t necessarily consider variables such as geographic location and education level.

Conversely, advanced compensation management systems use only accurate and complete data compiled by professionals. With these you can compare salaries based on all the relevant factors, including job descriptions, locations, and education levels.

When choosing the best compensation management software for your organization, look for the following key features.

Uses reliable cloud technology

Internet data is less expensive to gather and store, and employee data or market data can be accessed from anywhere. The reliability and convenience that automated compensation calculations provide HR managers frees up time for other aspects of workforce talent management.

Is easy to configure with your existing systems

Any pay programs you implement are only useful if you can use them with your current computing system. Try not to choose something that will force you to make major, expensive changes to another software solution you use.

Eliminates the risk of errors

The most important quality of a compensation management system is accuracy. Automated compensation planning tools are designed to eliminate the errors associated with manual calculations. Still, you’ll need to choose a product with a good track record for avoiding all errors. The best compensation software will be reliable and have good marks for accuracy to help compute competitive employee compensation packages.

Includes top-notch security

Your HR department handles very sensitive data. Be sure that whatever compensation management platform you choose, it’s secure enough to handle the level of data security you need to remain compliant. When it comes to payroll management, you might consider a higher level of security than required to meet minimum standards.

Centralized storage

Having all of your compensation data and employee performance information stored in a single location is time-saving and boosts efficiency.

Compensation management systems are a winning solution

By strategic use of your compensation management software, you can position yourself as an employer with whom top talent will want to land a job.

The tools and automation can help you develop smarter compensation strategies and more solid compensation plans and benefits management. Team leaders will be more empowered in their performance management efforts. And you’ll be able to access and apply valuable compensation data to help you restructure and optimize your compensation budget.

Ultimately, winning compensation programs help drive profitability by increased employee engagement, higher-level employee performance, and overall employee satisfaction and retention.

For a deeper understanding of employee compensation planning, see our complete guide to creating a compensation plan. For ongoing business and HR management news, tips, tools, and other resources, visit Workest by Zenefits daily.


1 Majority of workers who quit a job in 2021 cite low pay, no opportunities for advancement, feeling disrespected, March 2022


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