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Micah Fairchild 5 Must-Have Features for Any Compensation Management Software System

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 By Micah Fairchild

Integral Capabilities of Compensation Management Technology

Strategically managing employee compensation can be a trying process. From referencing external market data (that is constantly aging), to reviewing internal equity issues (that always seem skewed), to determining incentive structures (that never seem adequate), organizations face a difficult process when striving to connect compensation with strategy. Add to that the necessity to adhere to the best practice of "pay-for-performance" (P4P) or deploy a global compensation strategy and the process can be downright complex. As such, perhaps no other HR function is as important as managing compensation and no other HR software is as integral to organizational success as compensation management. In fact, a 2011 study by Ventana Research indicated that the proper implementation can net benefits such as:

  • Retention of key employees through effective pay-for-performance delivery
  • Establishment of a centralized repository for managing all base, bonus, and incentive compensation
  • Increased process efficiency and data access
  • Heightened strategic and analytical capabilities

Even so, countless companies continue to rely on out-dated legacy human resource systems to manage organizational compensation efforts—choosing spreadsheets and scratch pads as their software of choice. Still others languish in poorly conceived and poorly executed HRIS software implementations—afraid to sever ties with vendors for fear that their lot may be as good as it gets. And even more organizations are just now starting to look into deploying automated compensation solutions for the first time. Regardless of where your organization comes in at, and whether you're looking for new HR solutions or looking to improve old ones, the following list includes the must-haves for any compensation management system.

Compensation Software Must-Have #1: Legal "Look-Out" for Compensation Issues

When it comes to compensation, you want an automated solution that has the capability of acting like a watchdog—constantly focused on "checks and balances". Corporate policies, state mandates, and federal government stipulations are serious matters, and as such, a must-have for any compensation software is the automatic identification and resolution of "red flag" behaviors. Group differentials, affirmative action requirements, and countless other legislative-type issues have a hand in the way compensation is run in any organization; and organizations that want to ensure total compliance should look to a compensation solution that can stay on top of these matters.

Compensation Software Must-Have #2: Compensation Data Convenience

Ease of access to key compensation data is a must-have regardless of whether you automate or not. If you have to pore over thousands of spreadsheet lines to compile appraisals, development goals, incentive plans, etc. for a given employee, chances are good that your process will take much more time than necessary. As the goal of many of these automated processes is putting data into the hands of managers (through Manager Self-Service systems), efficiency and effectiveness are key. Hence, make sure that the information is easy to get to.

Compensation Software Must-Have #3: Compensation Workflow Automation

In concert with the must-have of convenient data access, truly functional compensation management systems automate workflows and provide the necessary notifications for efficient data delivery. Got an approval that needs to get done for an incentive adjustment? This function automatically routes information quickly and simplifies the process for employees, managers, and the HR department alike. Though this is a feature of nearly every compensation management software solution on the market, implementation approaches vary widely and its importance bears repeating.

Compensation Software Must-Have #4: Compensation Reporting

An "on-demand" reporting feature is a must-have for any compensation management system. Whether your organization is global and needs to segment budgetary distributions by currency, or you just need to see plain-view allocations by company division, a robust reporting feature can be worth its weight in gold. Further, reporting features also provide drill-down ability to focus in on single-department and even single-employee compensation specifics—allowing for "at-a-moment's-notice" updates.

Compensation Software Must-Have #5: Pay-for-Performance (P4P) Linkage

Few things carry as much weight as integrating your compensation system with your performance management software and process. Though still driven by pre-determined performance milestones, effectively tying individual, team, and/or company contributions to incentive or bonus pay-outs will net sizeable dividends. "This is significant because commission expenditures alone can represent the equivalent of 2% to 6% of a company's revenue, depending on the vertical industry", says Gartner's Michael Dunne. However, to be truly effective though, the right compensation mix needs to be achieved—which requires software system flexibility and calculation features.

Working out Your Compensation Software Wish-list

As always, thorough needs analyses and clear definitions of requirements will be the best identifiers of how to more fully evaluate specific software solutions (e.g. some solutions work better for variable compensation, while others are geared towards strategic financial outlays). However, the above mentioned points are just the buy-ins for the compensation management game. If your organization isn't kept abreast of necessary legal protections to enact; or doesn't have accessible data for managers; or doesn't tie exemplary performance to some type of reward structure, your compensation system is failing you and could wind up costing you dearly in wasted time and resources.

Regardless of where your company stacks up in regard to compensation management software readiness, it's clear that the issues that surround compensation (and the overarching "talent management") are in a constant state of flux—becoming increasingly more challenging with each passing day. That being said, software can be selected to help navigate these complexities, so that the goals of paying employees fairly, consistently and equitably can be achieved. Accomplish these goals and motivation, satisfaction, engagement, and commitment aren't far behind. End

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Group differentials, affirmative action requirements, and countless other legislative-type issues have a hand in the way compensation is run in any organization; and organizations that want to ensure total compliance should look to a compensation solution that can stay on top of these matters."


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