Compensation Management

What is Compensation Management?

What is Compensation Management?

Compensation Management Helps You:

  • Attract top talent
  • Retain and reward employees
  • Boost employee engagement and satisfaction
  • Increase profits
  • Ensure fair compensation and compliance
  • Analyze data and workforce trends

Attract top talent

Compensation management is all about recruiting a talented workforce. There needs to be more than just sourcing qualified candidates. How can you attract and hire the top employees? Understanding what a total compensation system is and deploying it.

Total compensation packages consist of monthly payments, several benefits and pay equity. Standard benefits packages provide your team with insurance and retirement plans. However, there are other benefits you can offer, like vacation time or remote working.

Sharing the total compensation program and growth opportunities attracts people to an organization. A compensation management tool can organize everything and ensure you offer applicants the best package possible.

What to add to your compensation system to meet industry standards? The answer is market data and analytics.

This data lets you compare your pay packages to competitors, ensuring you remain market competitive. Organizations can then motivate fresh hires with financial rewards and possibilities for growth by providing competitive salaries, bonuses and other benefits.

Retain and reward employees

In today’s competitive market, everyone’s out to hire the crème de la crème. So your compensation management strategy should prevent turnover owing to payment woes.

When you pay your employees a fair market value commensurate with their qualifications and experience, they feel valued. Another great way of supplementing base pay is to provide performance-based incentives.

Here’s a list of perks you can include in your compensation system:

  • Abundant time-off
  • Flexible working hours
  • Equity
  • Wellness programs
  • Comprehensive healthcare plan
  • Maternity or paternity leaves
  • Remote working
  • Paid time off (PTO)
  • Learning courses
  • Student loan support
  • Team-building exercises
  • Higher education support
  • Profit-sharing
  • Relocation reimbursement

A compensation management solution manages multiple benefits and distributes them contextually.

Some systems can even track and assess current market wages to ensure you always offer your employees a competitive rate. Implementing a software system will help your HR department automate these workflows, freeing them up to focus on other tasks.

Ensure equity

What is compensation management if it doesn’t aim for internal and external equity?

When an employee receives the same remuneration as other employees performing the same job with the same set of skills, equity is favorable. By rewarding individual development and generating an equitable wage rate, skill-based pay can contribute to long-term employee satisfaction.

The disadvantage is that it necessitates a significant investment in personnel training and cultivating newer capabilities. A measurement system should also indicate when employees master the new skills.

Boost employee engagement and satisfaction

A Gartner study found that employees like their work to be valued and impactful beyond a decent salary. Thus, paychecks are an outmoded motivator on their own. A few ways to foster an engaging work atmosphere for employees are:

  1. Task Gamification
  2. Competitive Dashboards
  3. Payment Simulations for Projected Goals
  4. Executive Compensation
  5. Global Compensation

In addition to affecting job satisfaction, compensation can also serve as a motivator. Offering employees incentives such as bonuses can increase productivity by rewarding top performers and encouraging others to think innovatively about daily tasks.

You can reward your team by providing additional compensation for a well-done job, showing them you recognize their value.

From benefits packages and healthcare plans to bonuses and extra perks like telecommuting, an advanced compensation management solution can help you manage it all. Here are the payment types of payment that compensation solutions automate:

  • Base Salary
  • Hourly Pay
  • Commission
  • Overtime
  • Bonuses
  • Equity
  • Travel Reimbursement
  • Health Insurance
  • Sick Time and PTO
  • Retirement

Increase profits

When employees feel valued, their output increase qualitatively and quantitatively, resulting in organizational profitability. What’s the role of compensation management software here? The answer: the right balance between your budget and revenue.

These tools can create a compensation plan to help you stay within budget. Deploy them to determine whether or not to expand your team and what kind of wages to offer prospective team members.

While you’ll want to ensure that you’re offering candidates fair and competitive wages, be sure that you aren’t overpaying.

As employees work towards achieving individual and organizational goals, the firm benefits from improved overall performance, directly contributing to higher profits.

Efficient compensation management also contributes to profits by decreasing employee turnover and associated costs. High employee turnover leads to several expenses, such as recruitment, training and onboarding costs and lost productivity during the transition period.

Ensure fair compensation and compliance

Paying your employees competitive salaries and reaping ROI isn’t enough. A well-thought-out strategy always complies with labor laws and other regulations.

Your compensation management strategy must establish compliance with rules in the following fields:

Periodically reviewing the HR Toolkit and relevant government websites while collaborating with HR and legal professionals can align your organization’s pay policies with applicable regulations in your jurisdiction.

Compensation management solutions ensure employees receive the proper pay and benefits by law by automating critical calculations and maintaining up-to-date compensation data.

Additionally, compensation software frequently comes with monitoring and analytics tools that let businesses monitor compliance and spot possible problems before they become serious legal issues.

These protections will help guarantee that your employees receive appropriate compensation and ensure that you always comply with the most current legislation.

Fortunately, in addition to monitoring wages for any given market, many systems are designed with safeguards that ensure compliance with these regulations. These protections will help guarantee that your employees receive appropriate pay and ensure that you are always compliant with the most current legislation.

A few features that can help with this include:

  • Compensation and Salary Planning
  • Employee Self-service
  • Reporting and Budgeting
  • Compliance Adherence Support
  • Incentive Program Administration

Analyze data and workforce trends

Compensation management can identify workplace trends by tracking and analyzing data. Many solutions do this via segmentation. HR professionals use segmented data to generate various reports, including those that assess data by department or single employees.

In addition to generating quarterly and annual reports, many solutions can create on-demand reports and compensation statements for individual employees. These statements can be general summaries or more comprehensive statements detailing perks, bonuses and incentives.

These documents can provide valuable insights into your business, which can help you to determine any parts of your workflow that you can improve.

Lastly, what is a compensation system if it doesn’t integrate with talent management software, performance management systems and the like? Through this integration, businesses may collect and combine data from many sources to get a complete picture of the staff.

HR executives can gain essential insights into employee performance, engagement, and fulfillment by analyzing correlations between various data sets. For example, organizations can:

  • Assess the usability of individual compensation components on performance
  • Identify the best mix of rewards for different employee groups
  • Evaluate the relationship between pay and retention

With the help of these insights, HR can make informed decisions to improve outcomes for the business and its people.


What are the different types of compensation?

Compensation management tools allow you to manage all kinds of payment plans. Traditional types include base, variable and differential pay. Specialized compensation types include executive and global pay.

What are the 3 Ps of compensation management?

Pay Equity

Making sure that workers receive equitable and fair compensation for their effort is known as pay fairness.

Pay Structure

Establishing a hierarchy of salaries and wages inside an organization that aligns with its principles and objectives is known as a pay structure.

Pay Competitiveness

Comparing the organization’s compensation system to industry norms and adjusting to maintain pay competitiveness.

What’s the role of HR in compensation management?

The HR department ensures that all employees receive accurate and fair compensation, including timely salary, bonuses, stock options, pensions and other perks the business may provide, such as travel reimbursement, hazardous work and overtime.

In larger organizations, these tasks may become highly complicated, necessitating the coordination and execution of all compensation and performance efforts by a specialized C&B team. However, in smaller organizations, these activities may be handled by only a few HR generalists.

HR professionals support compensation and benefits activities in multiple ways.

Employee morale is what’s at stake while performing compensation management. The HR team fulfills the following tasks:

  • Create a salary system and scale.
  • Maintain competitive salary rates.
  • Make sure that the payroll conforms with all applicable state and federal laws.
  • Oversee the payment of employee wages.
  • Develop staff promotion and retention plans in collaboration with managers.
  • Control the payroll and compensation teams.
  • Create and keep track of an organizational budget.

How can you formulate an effective compensation strategy?

Human resource management should evaluate pay rates for existing and potential employees regularly.

This process fulfills two functions:

  • Verifying that they comply with all relevant federal and state standards
  • Ensuring that offered rates are commensurate with the industry standard

Conducting market analyses and offering competitive rates will aid in recruiting and retaining top employees. HR leaders must also ensure that employees receive appropriate and routine pay.

What’s an example of compensation management?

A marketing agency hired ten people. How will they know how much to pay them? The answer lies in pay market analyses. It’s essential to understand what a compensation system is at this juncture. A compensation system is a structured approach to providing monetary value to employees in exchange for their work and contributions to organizations.

The HR teams conduct meetings and determine the remuneration for these employees with a compensation management PowerPoint presentation. Their abilities and labor contributions determine the appropriate compensation.

How do I select compensation management software?

You must consider several factors when finding the right solution for your business. You’ll need to be sure that whichever system you choose can manage compensation for all your employees. You’ll also want to know your budget when talking to vendors and requesting price quotes.

Once you’re ready, ask prospective vendors for a demo or trial of their solution so you understand how the system will perform. If you aren’t prepared to begin shortlisting, you might want to check out some of the resources we’ve compiled for you.

Have a question about which compensation software is right for you? We’re here to help! Contact our team for curated recommendations by messaging or phone at 855-850-3850.

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Compensation management articles are written and edited by:

Zachary Totah

Content Manager

As SelectHub’s Content Manager, Zachary Totah leads a team of more than 35 writers and editors in their quest to provide content that helps software buyers find the right system for their company.

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Hunter Lowe

Content Editor and Senior Market Analyst

Hunter Lowe is a Content Editor and Senior Market Analyst at SelectHub. He writes content for Construction, Inventory, Warehouse, and Supply Chain Management.

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Urnesha Bhattacharjee

Technical Content Writer

Urnesha has worked in content writing, editorship, and translation for the last 6 years. Her dream is to be a lifelong learner and venture out of her comfort zone as she does so.

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