Compensation is a key building block of the employer-employee relationship as it reflects how valued individuals are and feel. This means compensation management is a critical HR activity – and a complex one. Many employers struggle to deal with it effectively, consistently, and transparently across their organisation. However, the right compensation management system makes this much easier.

What is compensation management?

The aim of most compensation planning and management strategies is to ensure that all employees are remunerated fairly and equitably for their work. This compensation should also be competitive when benchmarked against wider industry and market rates.

There are four main types of direct compensation: hourly pay, salaries, commissions, and bonuses, but many employees also receive indirect compensation as well. This includes health insurance, retirement benefits and learning and development opportunities. Taken together, they form a ‘total compensation’ package.

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Other key factors that influence compensation planning beyond external market forces include:

  • The nature of the job: This consists of the responsibilities, skills and qualifications employees require to perform in their role. Compensation packages should reflect the perceived value of each role and how much it contributes to company profitability.
  • Individual employee performance and productivity: Rewarding high performers motivates employees to perform at their best.
  • Organisational aims: It is imperative to structure your compensation plan to incentivise reaching key business goals. These could include boosting revenues or encouraging people to stay to improve retention staff rates.
  • Budget constraints: The organisation’s current financial position plays a key role in terms of what remuneration is affordable, but this must be balanced against the need to remain competitive in order to attract and retain talent.
  • Legal requirements: It is vital to comply with relevant laws, which include minimum wage legislation and regulations governing holiday pay. Failure to do so risks legal action and damage to the company’s reputation. As a result, consulting legal professionals and undertaking regular audits is essential.

Why is compensation management important?

Compensation management is vital in providing organisations with an opportunity to show their commitment to their employees and their greater wellbeing. As such, it is crucial to regularly evaluate and adjust your activities here.

The aim is to ensure your approach remains fair and transparent as well as relevant and effective in meeting the needs of the organisation and its staff. The top three reasons for putting the effort in here are that doing so:

How can compensation management software improve efficiency and effectiveness?

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Many factors influence compensation management, making it a complex undertaking to get right. Many organisations still use manual processes at every level, including during performance, salary, and bonus reviews. This means that key information often sits in emails or spreadsheets, leading to unreliable record-keeping.

But dedicated compensation management software can make all the difference, here, by helping payroll and HR professionals curate, manage, calculate, and budget for employee salaries. It does this by centralising pay data and enabling you to process it more efficiently and effectively. This, in turn, helps with introducing a more consistent, data-driven approach to all compensation management activities.

Streamline pay review processes and make better use of data

By automating key tasks, such as pay modelling and calculation, these systems enable you to complete tasks more quickly and securely, with fewer errors. You can also store all relevant data in one place, which is important for delivering effective analytics. Using historic data to map and analyse trends will allow you to refine the salary review process and inform future decision-making, while improving cost control and pay transparency.

Improve reporting

If your system includes in-built reporting functionality, you will be able to deliver credible and insightful updates to key stakeholders. These stakeholders, which usually include the chief financial officer and remuneration committee, will then be in a good position to adjust budgets for salaries and bonuses in line with business objectives.

Standardise policies and procedures

Automation brings higher levels of standardisation to reward processes. This, in turn, leads to greater efficiency, consistency and higher levels of compliance. For example, it becomes easier to apply pay policies not just to individuals but also by country, division, department or grade. Ultimately, this situation promotes a greater sense of fairness among staff about how salary reviews are conducted, leading to higher levels of employee satisfaction.

Empower managers

Compensation management software introduces workflows that make it simpler and easier for line managers to conduct salary and bonus reviews effectively and accurately. It also makes the process quicker as unnecessary admin is automated.

What should you look for in a compensation planning tool?

The compensation planning tool of choice should have a number of key capabilities:

  • Shortening and simplifying your pay, salary, and bonus review processes while still aligning with your organisational strategy
  • Monitoring, managing, and controlling the whole compensation management process, thereby reducing the risk of errors
  • Deploying employee data effectively
  • Modelling pay to create multiple scenarios as part of a single pay review
  • Reporting with in-depth and up to date insights
  • Enabling users to access the system from a desktop, tablet, or mobile device with responsive design.

Do you need a better compensation management system?

Compensate is our leading-edge compensation management tool. It provides a consistent, data-driven approach to salary and bonus planning by means of a responsive, user-friendly interface accessible from any device.

Harnessing employee data

Compensate lays out your organisational hierarchy in relation to the pay review process. This structure automatically generates individual ‘tasks’ for each manager and assigns them various employees to review. Should it become necessary, reassigning managers is a straightforward process. Should someone become unavailable during a review period, it is also possible to seamlessly move their assigned tasks to a replacement to avoid delays. HR business partners may also be assigned a ‘secondary role’ within the review framework if line managers require assistance.

Pay modelling

Compensate enables reward managers to model different scenarios and approaches to pay reviews. They can also model different awards and create rules for the system to follow, such as minimum and maximum salary or wage increases. Another thing the system does is to work with multiple criteria, such as specific uplifts to target groups, or an overall increase in base pay based on individual performance. It can also model multiple scenarios for individual employees.

Creating pay matrices to identify the right budget

Compensate’s pay matrix software enables employers to define percentage salary and bonus increases using the same criteria they employ in pay reviews. This makes it possible to introduce variable increases based on performance, market position, and division.

Aligning annual pay with budgets

Once all the necessary calculations have been completed, line managers are able to view the recommended annual pay award and adjust it based on the rules created in the system. They can also see the proposed award mapped against the appropriate budget in real time. Other employee data can also be accessed, if required, by clicking on the name of relevant individuals. When this process is complete, line managers can then submit all of the relevant information to a senior manager with one click.

Creating reports and monitoring progress

A series of standard, downloadable reports is built into Compensate, but reward managers can also create tailored ones at the implementation phase if desired.

A standard pay review task report, for example, enables them to monitor the review process and see the progress made by each line manager. They can also add appropriate filters to reviews based on specific criteria or focus on a particular part of the organisation.

Finally, reward managers are also able to create reports based on an analysis of all the reviews taken in the round. This analysis can then be included in either a final calibration review or in documents for the board and remuneration committee.

Enabling transparent communication

Compensate enables line managers to create employee letters using filters that ensure information is tailored to each individual.

Zellis Compensate can handle the most complex pay structures and diverse workforce needs.