Compensation is one of the largest expenses in a company’s budget. Yet, some businesses continue to manage it using dated manual processes or a system that doesn’t integrate with the rest of their talent management solution. Successful organizations know that compensation management is more than just a means to help reduce regulatory compliance risk and control costs. It’s also one of the keys to helping support pay equity and attracting and retaining top talent.
Table of Contents
What is compensation management software?
Compensation management software simplifies compensation decision-making so employers can reward their employees more confidently and accurately than ever before. Built-in tools help keep pace with the changing nature of the pay landscape while aiding compliance with established compensation requirements.
Why use a compensation management system?
Managing employee pay using spreadsheets is inefficient and poses security risks, which is why many employers prefer compensation management software. It provides easy access to accurate data, including historical compensation information and relevant budget and allocation guidelines. As a result, employers can better control costs and hold front-line managers accountable for results.
Factor in dynamic decision support tools and flexible approval processes, and employers have everything they need to make difficult pay-related decisions. Compensation management software also shortens compensation planning cycles and reduces the need for HR intervention.
Who uses compensation management software?
All types of businesses – small, large, local or international – use compensation management software. After all, compensation plans need to be completed on time and within budget, regardless of an organization’s size or operations.
Compensation management software features
Software that makes it easy to manage even the most complex compensation scenarios for individuals and teams tends to have dynamic decision support tools, flexible screen presentations and robust reporting and analytics.
Decision support tools
Interactive worksheets and built-in modeling tools give managers formula-driven guidelines for smart compensation planning. They may have the following information at their fingertips, which can help them make equitable, informed decisions:
- Salary ranges
- Market rates
- Peer ratios
- Historical employee data
- Budget allocations and more
Flexible screen presentation
Role-based permissions let administrators control and customize the information, employees and groups visible to each user. With this flexibility, they can create alternate screen presentations based on compensation plans or user visibility rules so managers see only the pay details pertaining to their staff.
Reporting and analytics
Compensation management tools help deliver real-time, strategic reporting, as well as full audit trails for demonstrating compliance. These reports usually highlight performance distribution and adherence to budgets and exceptions. They may also include helpful graphic displays, summary statistics and detailed compensation insights.
Benefits of compensation management software
When supported by the right people and processes, the best compensation management software can help businesses enable pay for performance, reduce overspending, save time and accommodate diverse employee groups and regional business variations.
Enable pay for performance
Software makes goal-driven compensation possible, which means employers can reward employees based on progress toward specific outcomes. The system establishes a clear link between employees’ pay and their contributions to business objectives, resulting in a more focused workforce.
Control costs
Mismanaged compensation plans can add up to hundreds of thousands of dollars to budgets annually. Software limits such overtures with built-in controls that can help automatically enforce adherence to corporate guidelines. It may also flag non-compliant internal policy recommendations and route compensation transactions through pre-defined approval channels.
Save time and resources
Employers can pre-define pay guidelines, salary ranges, market data and budgets within their software solution to save time during compensation planning. What’s more, instant access to decision support tools helps managers make more informed decisions, eliminating the need for HR assistance.
Accommodate diverse groups and business variations
Compensation requirements become more complex as businesses grow, but software can help them keep pace with the changes. The highly configurable structure of the technology supports multiple compensation plans without compromising corporate governance. Employers can standardize processes and enforce internal guidelines using a single application across all geographies, employee types and business units.
Take the guesswork out of market pay and elevate your compensation strategy.
Download NowWhat can HR professionals do to implement effective compensation management technology?
Employers should integrate their compensation management solution with their HR system of record to ensure that every compensation-related decision is based on the most up-to-date information. They may also want to leverage benchmark data to help determine competitive wages for various roles in their target market.
Yet, genuinely effective compensation planning sometimes takes more than just technology. Employers using outdated HR processes must also be willing to shift their focus. The following table illustrates such transitions:
| Ineffective state | Ideal state |
|---|---|
| Going with gut reactions when planning compensation | Using actual performance and benchmark data to inform decisions |
| Thinking about compensation once a year or when evaluating flight risks | Building an “always-on” culture of mental and financial wellness |
| Regarding pay equity and transparent compensation as merely regulatory issues | Embracing the importance and impact of fair and competitive pay |
How can compensation management software improve company culture?
A compensation management platform can help employers create a workplace culture that embraces pay equity – something many employees value greatly. In fact, 76% of workers would consider looking for a new job if they discovered an unfair gender pay gap at their organization.1
The good news is that employers needn’t lose employees because of unfair pay. With compensation software, they can identify any organization-wide pay gaps that might exist and address them. They can also use the technology to implement pay-for-performance and help prevent future inequities.
Frequently asked questions about compensation management
Can compensation management software help with compliance?
Compensation management software, along with people analytics, can help employers comply with pay transparency laws. These laws vary by state, but many of them require businesses to publicly disclose pay ranges for open positions. With the aid of compensation management software and benchmark data, employers may be able to determine pay ranges that are equitable and competitive for their market.
Is compensation management software secure?
Compensation management software is more secure than outdated compensation planning methods, like spreadsheets. However, the level of security is largely dependent on the software provider. At ADP, for instance, we embed multiple layers of protection into our products, processes and infrastructure so our clients can feel confident that their sensitive data is secure.
How can compensation management software support employee retention?
Compensation management software can help employers implement pay-for-performance and equitable pay practices. Employees value such initiatives and may be more likely to stay with their employer or even become brand ambassadors. In fact, a recent ADP Research Institute (ADPRI) study found that individuals who believe their pay is fair are 2.8x more likely to be promoters of their company’s talent brand than those who don’t.2
Can compensation management software integrate with other HR tools?
Yes, compensation management software can be integrated with HR systems of record to help ensure that employers always have the latest HR data when planning compensation. Solutions may also have connectivity with other data sources, like benchmarks, sales, revenue and performance scores.
1 ADPRI, People at Work 2022: A Global Workforce View, 2022
2 ADPRI, Today at Work: What Is the Truth About Pay?, 2023
This article is intended to be used as a starting point in analyzing compensation management HR software and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
