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What Is Compensation Management Software and Why Should You Consider It?

Jen Dewar
Mar 11, 2020 12:23:38 PM

Employee compensation is likely your organization’s biggest operating expense. When executed well, it can provide many worthwhile business benefits. But when executed poorly, it can cause a lot of problems—many of which could be irreversible or extremely costly.

Compensation management software helps you execute and analyze your compensation strategy so it can be your competitive advantage.

At a time when there are more job openings than unemployed people to fill them, people have more choices about where they want to work. Software can help you use your limited budget more strategically so you can hire the right people, improve engagement and productivity, and meet business goals. It can also keep you out of compliance trouble and protect your business’ reputation.

Great compensation management software can help you in a number of ways

There are many reasons you should consider compensation management software, but they may vary based on your organization’s unique attributes, goals, and focus areas. An international company may benefit from using software that can streamline compensation across multiple countries and currencies. Legal and compliance teams can use software to access audit-supporting data. And strategic HR teams often benefit from using software that helps them become more efficient and make better data-driven decisions.

Here are some other common ways businesses benefit from the right software:

1. Make competitive, fair, and consistent offers

Fifty-seven percent of candidates said compensation was one of the most important factors when looking for new opportunities. Competitive offers can be the difference between closing your top-choice candidate, or losing them to a competitor. Still, you have a limited budget to work with and internal pay equity to consider.

Compensation management software helps you visualize your salary bands and where employees fall into them. This helps you make strong offers without overpaying or creating internal pay inequities. With the right talent in place, you are better equipped to reach your business goals.

See how Segment uses compensation management software to ensure fair, consistent pay.

2. Make strategic raise recommendations to retain employees

Seventeen percent of people have said that money was the reason they left their jobs. This could be due to any number of reasons. Your top performers are probably in high demand, and may be receiving higher offers elsewhere. Tenured employees may have fully vested stock, and considering how a move could offer the opportunity for more stock. Or employees may have identified internal pay inequities and decided to leave.

Compensation management software can help you execute a more strategic raise cycle to combat employee turnover. The right software can show you the data you need to address company priorities, like pay equity or salary band changes. It can identify employees who are vesting so you can offer stock refreshers. And it can help you collaborate with managers and company leadership to provide appropriate merit-based raise recommendations. While you can’t stop turnover altogether, you can certainly take measures to reduce it.

3. Spot pay inequities

Even the most well-intentioned companies can have a pay gap—but they may never know if they don’t conduct a pay equity analysis. The problem is, those can be time-consuming and HR professionals are already strapped for time as it is. Even if you do conduct a pay equity analysis, subsequent compensation decisions can cause pay equity to fall out of whack very quickly. Companies may go an entire year before spotting inequities during the next analysis, which could cause low engagement, turnover, and compliance trouble.

Compensation management software can crunch your compensation data and analyze pay equity for you. What’s more, it can give you instant insights into pay equity so you can prioritize fair pay throughout the year. This data can be used to inform your people strategy and programs to address issues as early as possible.

4. Improve pay transparency

Talking about compensation isn’t as taboo as it once was. Your employees are likely discussing compensation with one another, and with their managers. The problem is, most managers don’t know how to respond in a meaningful way. They may be unsure of how employee pay is determined, and why some employees are paid more than others.

Employees may be paid through a combination of salary, bonus, and stock. Understanding how those all come together are crucial for a transparent conversation around pay. The right software can help managers and employees better understand and communicate Total Compensation, and how it came to be.

For instance, an early employee may have received a lower salary and more stock than a more recent hire. But most employees and managers don’t understand how to translate stock options into their projected value. Managers may also have one employee with a lower salary and higher bonus than another. Having access to that type of information is helpful for managers to have informed, transparent conversations with their reports.

Compensation management software is an investment

When compensation is your biggest operating expense, compensation management software is an investment to ensure you’re using it wisely. Salary, bonus, and stock are powerful tools to attract and retain the talent you need to maintain your competitive edge. But so are pay transparency and communication. You don’t need to spend the most cash, or distribute the most stock to build an incredible workforce—but you do need to earn your employees’ trust if you want an engaged, productive team. The right software can enable your HR team, managers, and company leadership to maximize your finite resources.


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