What exactly does compensation management software looks like, what are the benefits, and what do you need to consider before implementing one?
One of the main benefits of a good compensation management system is pay equity, but there are ample other benefits, like aiding in budget creation, attracting recruits, reducing turnover, and more. It’s important for business owners and HR leaders to know how compensation management works, the benefits, and what to consider before investing in an appropriate system.
What is compensation management?
Compensation management is the process of ensuring that an organization’s salaries and bonuses remain competitive, appropriate, and equitable. It also involves managing company benefit programs to make sure they meet the needs of the current workforce. Compensation managers are responsible for working with employment data and keeping up with complex benefits administration rules and regulations.
Compensation management plays a large role in HR because it can impact employee retention, the hiring process, company performance, and team engagement. Compensation managers are an important asset to the company’s success. If salary, bonuses, and benefits aren’t managed properly, employees might find much better comp packages elsewhere, performance and job satisfaction could decline, and several other factors could negatively impact the business.
According to TechTarget, the process for creating compensation packages and benefits are changing. “Wellness incentive programs, in particular, are having a major impact on employee compensation packages.” HR professionals need to be flexible to handle new and existing benefits as the workforce continues to evolve. Flexible work options, maternity or paternity leave, adoption reimbursements, and similar incentives are a few compensation package inclusions gaining popularity. So, it’s no longer just about the money.
What are the objectives of compensation management?
Compensation management programs are designed to keep salaries and benefits competitive to help both employers and employees. A comprehensive strategy helps the hiring managers make attractive offers to new talent based on data and current market trends. A compensation management plan also comes into play when giving raises or bonuses to top performers.
The objective is to make informed compensation decisions based on salary market data, industry, company size, job role, and location. Although there is value in compensation data analysis, it’s important to make compensation decisions according to the employee’s performance, qualifications, and potential. Offering the appropriate compensation (ie a package that is comparable to other companies in your field and location) can help lower turnover rates as employees will have less incentive to leave based on salary alone.
Another main benefit of compensation management is ensuring compensation equity. Determine if there is a gender wage gap at your company, or a wage gap based on other characteristics, such as race or ethnicity. Oftentimes data will reveal biases or discrimination that HR leaders or businesses owners are either ignoring or unaware of.
Finally, it can help save your company money by highlighting those you may be overpaying in comparison to market rate.
What should I look for in a compensation management software?
If you’re wondering how to analyze data, keep up with workforce trends, and manage compensation all on your own, don’t fear. You’re not alone. Managing every aspect of the process manually might feel impossible. That’s why many HR managers turn to compensation management software for help.
An effective software solution can help with budgeting for employee salaries, provide salary information according to a specific job role, and more. The software is designed to give managers a 360-degree view of employee data needed to make staffing decisions.
A compensation management feature is typically included in a human capital management software. When looking for a software, find out if it’s compatible with your current suite of digital HR solutions.
HRlab recommends choosing software that has a legal component for identifying potential compensation issues. It’s critical to abide by corporate policies, and state as well as federal regulations when implementing a compensation plan.
Data access is another important feature to consider. What sources is the software pulling data from? It’s crucial that the source of data is large enough to signify statistical significance, and that it’s reliable (that is, not randomly reported, nor self-reported).
Along with access, the reporting component should be straightforward and easy to use. Whether you need to segment budgetary distributions or see where the money is going as a whole, an easy to use reporting feature is critical.
Workflow automation is also important to consider. Micah Fairchild from HRlab writes, “truly functional compensation management systems activate workflows and provide necessary notifications for efficient data delivery.” A reliable software should simplify the entire process for employees, managers, and all of HR.