Compensation Management Software: The Key to Strategic Compensation Planning

Strategic compensation planning is a fundamental component of good organizational management, providing a basis for monitoring progress and assessing results, as well as recommendations and guidance in managing total employee rewards. Planning contributes to organizational stability and growth, helping companies stay on track to reach their goals.  Since labor costs make up the majority of expenses for most organizations, it is critical to understand the various components that make up these costs.  Strategic compensation planning requires compensation analysis, which can be a complex process; however, it is a necessary tool to control costs and ensure fair practices and pay.  As recovery from the global pandemic continues, strategic compensation planning is more important than ever.  

Compensation analysis is vital to providing fair, equitable compensation, one of the key components necessary to attract and retain the best talent.  A regular and thorough compensation analysis provides the data and insights needed for critical decisions related to employee salaries.  This ensures that an optimal compensation budget is developed and allocated efficiently, which can have a considerable effect on the company’s bottom line.

The Compensation Planning Process

In the planning process, some companies rely on home grown spreadsheets and databases for calculating and analyzing compensation planning data.  Some months before the final budget is due, employee data is extracted from the payroll system.  The data are analyzed to project the costs of an overall annual salary increase, which may include merits, internal equity, and market adjustments.  Additionally, those spreadsheets are used to forecast commissions, bonuses, and incentives, and to perform cost analyses based on various what-if scenarios.  While spreadsheets can be a great tool, they lack critical functionality and scalability.  The analysis process using spreadsheets is cumbersome, requiring manual manipulation of large amounts of quickly outdated data. 

This process is also rife with the possibilities of human error – overwriting formulas (even protected cells), entering the wrong information, adding or deleting columns/rows, etc.  Even with sophisticated queries, macros, and pivot tables, last minute changes and updates can compromise the integrity of the data.  This responsibility usually falls on a generalist with competing priorities that make it difficult to create and maintain the integrity of the spreadsheet and then take an analytical and objective review.  The spreadsheet process usually involves a Compensation or HR team member parsing data into individual spreadsheets, which are then emailed to managers for recommendations.  After the spreadsheets are returned, they are reviewed to identify and fix any errors, recalculated with changes tracked, and consolidated into one spreadsheet for overall review. 

Market analysis requires linking external data to make informed decisions about job offers, determine salary compression, and evaluate if salaries are keeping pace with competitors for labor. A company needs extensive data to determine how it is doing, which involves calculating position in range, compa-ratio, external competitiveness, internal equity, fair pay analyses, geographic differentials, and levels.  Any resulting compensation changes must then be communicated with the payroll department, most likely using another spreadsheet with all the same risks for error.  Communication of changes is accomplished by merging a Word document with the spreadsheet and distributing it to managers and ultimately employees.  Compensation continually changes based on both the internal and external environment, and this methodology is cumbersome at best.  It is pretty clear that spreadsheets fall short of what is needed to effectively manage compensation planning.  Given the business impacts at stake, organizations have a compelling case for investing in a compensation management solution. 

Why You Should Use Compensation Management Software

With the right automated compensation software in place, HR and compensation teams can shift from a tactical approach to more strategic efforts, including improving the quality of manager decisions regarding compensation.  It allows timely refinement of a compensation strategy.  Beyond the immediate value to HR and compensation teams, automated compensation management solutions can optimize productivity and provide real-time results for salary planning.  Managers are able to review their direct reports, accessing comparators both internally and externally.  They can immediately see the impact of decisions to not only their team, but also to the organization as a whole.  Transparency of decisions can often curb one-off decisions made in a silo. 

Compensation management software can link directly to the payroll system, so real-time updates to the employee population allow for meaningful what-if analyses, as well as an understanding of the financial impact of salary adjustments, merit increases, fair pay analyses, projected bonuses, incentives, and commissions.  It allows agility, flexibility, and visibility – one can clearly see where there are equity and compression issues.  As with most data-driven approaches, better decisions are possible.  With the help of compensation planning tools, companies can get a clear picture, spot areas for improvement, and understand and evaluate the effectiveness of their compensation strategies.  It is important to develop an auditable compensation planning process that is transparent.  Extensive reporting capabilities also provide a more convenient way of analyzing information.

Compensation management software helps businesses streamline and automate their compensation planning process.  It accomplishes this by optimizing budget allocations and aligning compensation decisions with an organization’s guidelines.  Compensation has become much more complicated than it once was.  Strategic compensation planning must maximize the effectiveness of the budget for each employee and department, while providing compliance and governance to ensure that employees are not only compensated fairly, but also motivated and engaged. 

ERI’s Salary Assessor provides a compensation management platform that walks you through the planning and implementation of your organization’s compensation plan.  This application provides all of the necessary tools to develop comprehensive and competitive compensation strategies that help attract and retain top talent and allocate rewards responsibly and fairly.  The investment in a reliable compensation management solution is worth it and can have a considerable positive effect on organizational success.