Why your compensation management strategy shapes your organisation’s culture and success

Getting compensation management right should be a top priority for employers this year – here’s why.

Geoff Pearce, Managing Consultant, Reward, Zellis

Feb 18th 2020

“How do salary and bonus reviews work in your organisation?”

If you asked this question to a group of employees, the chances are you would receive a variety of different answers. A good number of people wouldn’t be able to answer the question at all.

Although a critical part of HR strategy, businesses often struggle with establishing a consistent, transparent and, above all, effective approach to compensation management – one that will benefit the organisation and its employees alike. It’s still very common for this process to be mainly (if not entirely) manual.

However, the issue of pay and reward has come under the public spotlight like never before, especially with the introduction of legislation aimed at improving equity and transparency, including compulsory gender pay gap and executive pay gap reporting for large organisations. And with talent shortages rife, particularly in STEM areas, employees are in a stronger position to command a higher rate of remuneration in return for their valuable skills. In fact, average UK wage growth has reached an 11-year high.

For these reasons and more, getting compensation management right should be a top priority for employers this year. Compensation is, after all, the most fundamental aspect of the employee-employer relationship. Getting it wrong could have major implications for your organisation’s culture and success.

Common challenges with compensation management

A strong employee experience is about more than just compensation – it’s also about various ‘soft’ benefits like flexible working, access to learning and development opportunities, and the organisation’s overall culture and ethos.

Nevertheless, our survey indicates that salary is still the top priority for the majority of UK employees: 60% agree it’s the most important factor when looking for a job. Not only this, but almost all (95%) also expect to receive progressive increases in the value of their ‘total rewards’ each year.

This implies that they expect employers to have a dedicated compensation management system in place to facilitate regular performance and loyalty-based salary reviews. Many businesses rely on highly manual processes to conduct these reviews, with perhaps the most common offence being to record the information in siloed and easily discarded spreadsheets. Worse still, some may conduct reviews over email or by word-of-mouth, leaving no reliable record behind at all.

A lack of effective delegation is another by-product of this approach. Without formalised procedures in place, it becomes difficult to know who can conduct and approve salary reviews (and under what conditions). Staff are also left in the dark, lacking an understanding of how the process should work. All of this creates an environment for inconsistency, opacity, and frustration – and this reflects poorly on the overall employee experience.

How does compensation management software benefit your business?

In the process of transforming your HR function through digital technology, compensation management is certainly not an area to overlook – especially due to its complexity, reliance on accurate information, and need for strong collaboration between managers at different levels. Having a dedicated software system in place to organise, orchestrate and record salary and bonus reviews presents a range of different benefits to businesses, including:

1) Streamlined pay review process

By using intuitive and propose-built software, you get things done faster. It helps automate tasks such as pay modelling and calculations, stores all relevant data together in one place, and reduces the frequency of errors. As a result, employees are happier – and this means better retention, reduced hiring costs, and stronger engagement.

2) Standardised processes and policies

These are essential for ensuring business continuity and operational excellence. If you rely on undocumented policies, you’ll encounter major problems if the person who was in charge of them suddenly decides to leave the organisation. Strong software helps to cement key aspects of compensation management, such as the criteria which makes an individual eligible for a salary increase. This not only leads to greater consistency, but also a greater sense of fairness in how salary reviews are conducted.

3) Better use of data

Centralising data within a software system means that you can make better use of it, especially through analytics. Over time, it will be possible to use historic salary data to map and analyse trends – and this, in turn, can be used to help refine the salary review process further and inform future decision making.

4) Improvements to reporting

Using compensation management software with built-in reporting functionality enables you to deliver credible and insight updates to key stakeholders, including the Chief Financial Officer and the Remuneration Committee. They can then take any steps necessary to alter the salary and bonus budget in line with business objectives.

5) Empowered managers

Compensation management software makes it easier to delegate responsibility for salary and bonus reviews to line managers – something which also helps to expedite the overall process. It further empowers them by eliminating any unnecessary admin that could take their focus away from more complex or strategic tasks.

Your compensation management strategy plays a vital role in shaping culture and employee experience – two things which will determine your organisation’s level of success within the highly competitive talent marketplace.

If you want to find out more, read about Compensation Planning Solutions from Zellis today.

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