8 Reasons To Use Compensation Management Software

The world is currently facing the worst shortage of workers in various industries and professional fields. The talent shortages are severe to the point that they are crippling some businesses and leading to their downfall.

With such worker situations, a company needs to remain wanted by its current employees and potential talent. In a study, it was discovered that 57% of job candidates list the job’s perks and benefits as their first considerations before applying for the job. Such statistics and facts denote the importance of competent salaries, benefits, and perks in every job.

When it comes to processing salary payments, salary increments, etc., HR departments struggle with these tasks. The tasks involve a lot of manual labor, calculations, and research to ensure you pay your employees well and competitively. This is where systems for compensation management come in.

Compensation management software offers a solution to businesses. The software ensures that their compensation strategy is up to par with the job market. Compensation management software can help any business size; startup, or fully established business.

The implementation of compensation management software offers many advantages to a business. These advantages of compensation tools lay the basis for reasons why organizations should use them. This article highlights a few reasons why organizations should use compensation management software.

1. It Helps to Spot Compensation Inequalities

Society is growing towards achieving gender equality. With this in mind, it is dangerous to have unexplained pay differences or gaps in your organization. The scary thing about this is that all businesses and companies have pay gaps. The gaps can either be intentional or unintentional.

It is up to a business to seek to identify pay gaps and solve them. Identifying pay gaps is tedious due to manual labor. Firstly, the HR person would have to analyze the salaries based on job titles. After analyzing the compensations, they would have to calculate the average pay. The next step is to look for significant deviations from the average pay.

Compensation systems shorten the time it takes to detect pay discrepancies. As a business, implementing HRsoft’s compensation management solutions will help identify compensation inequalities. This will improve employee satisfaction and increase the employee retention rate.

2. Strategic Salary Increments

In this era of worker shortage, poaching of workers by different companies has become a common practice. Businesses approach already employed personnel and offer them better wages and compensation packages. This is used to lure the employees into the new organizations and leave their current employers.

As a business owner, it is always daunting to be caught up in attempted employee poaching. At this point, most employers resort to giving their employees compensation increments. Though the tactic helps retain them, it often ends up harming the compensation structure of the business.

As a business owner, having a compensation management system will help you give strategic salary increments. The strategic salary increments help retain an employee at the organization. They do this while ensuring you have not exceeded the employee’s market salary. Giving an employee a high compensation increment will affect the economic feasibility of the move.

3. Reduction of Errors in Employee Compensations

Conventionally, businesses use spreadsheets and other document editing programs to manage compensation plans. With the use of these application programs, errors were common, for example, human error during input, data analysis, etc.

The use of independent applications that collaborate to achieve a common goal increases the risk of errors. Compensation management systems merge all compensation functions and processes into one entity. Combining all the functions into one entity that handles all, reduces errors significantly.

Using compensation management software also reduces errors through automated data analysis. Using data science models to generate insights from patterns produces fewer errors. An example of automated data analysis in the systems is analyzing for compensation inequality, or pay bias.

4. Increased Salary Transparency

Increased Salary Transparency

Everyone used to keep their income as a hidden treasure that only they knew about in the past. The reasons behind this behavior could range from gender-biased salaries to overcompensation. This habit has faded away and is no longer existent in modern days.

Currently, employees openly disclose their salaries to each other. Some even go to the extent of advising each other on how to negotiate salary increments. Due to the open discussions of salaries, questions about the pay differences are bound to arise.

A good move as a business owner is to grant the employees the answers they seek. If people are concerned about the pay difference among them, give them detailed reports that show a breakdown of their income. The breakdown could show basic salary, benefits, bonuses, stock, etc.

Having this information readily available to your employees will promote transparency and their loyalty to you as a boss. However, it is impossible to have this information available when using manual compensation processing methods.

The compensation management system can store data in a database. Structured reports will be developed at any point to show the data or information in question. For a company to increase its salary transparency, they have to use compensation management software.

5. Data Security and Confidentiality

The modern compensation management software offers more data privacy than conventional methods. The systems have different access privileges for every person working in the organization.

The modern systems have authentication systems that refer to a person’s access privileges. This ensures that data cannot be accessed by unauthorized personnel. The increased security and confidentiality of compensation information give employees peace of mind. This is because they know their confidential data will not leak.

The data security offered by compensation management software also ensures that your competitors do not gain insights into your business operations. In events where competitors gain compensation insights, they can poach your employees by offering better salaries.

Another security advantage is that hackers cannot gain access to confidential employee or organization data. Such occurrences often set the precedence for cybercrimes such as identity theft, hacking, etc.

For small businesses that cannot afford to set up and maintain secure in-house data networks, it is safer to opt for cloud-based compensation management systems. These systems will offer data security and confidentiality at a fraction of the price of hosting the systems on an in-house server and network.

6. Creating and Managing Holistic Pictures of Employees

Unlike in the past, the concept of remote working has been embraced by many companies. This means that companies are hiring people who live in other countries. With such conditions, some employers never get to see some of their employees.

A compensation management system will create a picture of every employee and detail their employment details. The holistic picture will help the company come up with a good compensation structure for the employee.

If, for instance, a company is hiring two employees, one from Germany and another from Canada, the compensation system will be required. The compensation system will consider the local taxes, cost of living, and other factors for each employee and then come up with good compensation for each employee.

7. Simplification of the Compensation Process

In large organizations, the payment process is often quite hectic. With manual compensation processes, a lot of paperwork has to be processed before salary payments are done. With the manual paperwork, payment delays become inevitable.

When using a payment management system, the system processes all salary payments automatically. Payment management systems also help to easily handle the compensation of workers in an organization where employees have different compensation plans.

The compensation management systems also grant employers the ability to run payment reviews periodically and also to update payment cycles. Another unique advantage of compensation systems is that they allow managers to give employees salary increments over time.

The salary increments are granted based on employee performance in the workplace or the duration they have worked at the organization. This feature helps employees feel appreciated at the workplace thus improving their overall motivation.

8. Employee Engagement

In conventional compensation processes, employees did not have a way to see their compensation reports or make any comments about their compensations. The manual compensation process resulted in employees feeling left out when it comes to their salaries.

However, with compensation management systems, employees can log in to the system for several purposes. Once logged in, employees can track their compensations over the period they have worked at the organization.

The employees can also get reports of their promotion or wage increment history. Another additional feature to increase employee engagement is the provision of employee assessment dates. This provision allows employees to prepare for their assessments which can eventually lead to a salary increment.

Increased employee engagement is a unique feature that helps companies retain their employees because they feel part of the organization.


When it comes to compensation management software, it is best to think of it as a business investment. This will open your mind to appreciating the advantages offered by the system, and its value in the overall compensation plan of the business.

It is also vital to check the target market of various systems before buying. Though they perform similar functions, some compensation management systems are developed with specific industries and work conditions in mind. This should be considered before you settle on your purchase.

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