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Dave Foxall Compensation Management Software's Most Strategic Benefits

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 By Dave Foxall

Achieving the Benefits of Deploying Compensation Management Software

In 2010, Forrester Research penned a report, HRM Solutions: Traditional Models Clash with Next-Generation Processes and Technology, which outlined an interesting and emerging trend with broad implications for compensation management technology. Specifically, Forrester's research found that "Compensation and benefits build loyalty and retention around rewards programs". Yet, as the research found, "As more companies adopt a philosophy of pay-for-performance throughout the workforce, more sophisticated processes are required to align goals and rewards programs". Two years on, the complexity and direction of compensation management software applications are expanding; increasingly being designed to deliver a broader total compensation management approach and taking a more strategic view of all employee incentives and rewards (and linking them back to results and performance). This transition of sorts for compensation management technology has seen countless organizations lining up to leverage this HR software; yet many organizations remain unclear on what organizational benefits can exactly be expected by utilizing compensation management applications. As such, for those organizations considering but not yet committed to compensation management software, the following guide provides a roadmap for this HR software's top benefits.

Compensation Management Software Benefit #1: Reduced labor costs

The use of salary and compensation data (both internal and external) to facilitate better planning and more targeted incentive programs is a key factor in controlling the cost of labor. In fact, 2011 research from the Society for Human Resource Management (SHRM) cites several case studies in which labor costs were able to be reduced significantly through compensation management software. Specifically, the study found that one organization was able to "reduce time spent on the salary planning process by nearly 65% (eight weeks to three weeks)". In addition, another company reported that "its salary survey process was reduced from six months to six weeks"; while another company was able to "achieve more than $10 million in savings by implementing e-compensation". As can be seen, compensation management software was a controlling factor in terms of those cost reductions, but it should also be noted that an equally critical aspect of these successes hinges on the fact that the compensation software allowed for better, faster, and more effective use of information to be leveraged.

Compensation Management Software Benefit #2: Improved talent retention

Mercer's 2012 report on compensation planning found that although global levels of unemployment have risen, so has employee dissatisfaction with employers. This means that the attraction and retention of talented high-performers is as great a priority as ever. On the other hand, the generally precarious nature of the global economy means that compensation plans, pay structures, and plan models must tread a fine line – neither inadequate nor extravagant. Indeed, as Ventana's 2011 report, Trends in Total Compensation Management, suggests, creating better compensation planning is critical and seen as a high priority for fully 78% of respondents. Sophisticated compensation management software can enhance these planning capabilities and in turn, as SHRM research reports, foster organizational agility when it comes to taking quick action, "to modify compensation packages, in order to attract high potential applicants and retain top performers".

Compensation Management Software Benefit #3: Increased employee engagement

A common area of contention in employee surveys is compensation and reward. In large part, as SHRM's above-referenced report points out, one of the major contributing factors to this contention of recent years is that "Employees now have easy access to web-based salary information [and] they are better informed as to how their salaries fit within the local marketplace". Further, as the report highlights, "This knowledge may serve as a stimulus for the organization to keep its compensation structure up-to-date and internally equitable". Many organizations persist in a policy of semi-secrecy regarding compensation structures. As the previous quote implies, there is little point in maintaining that secrecy (although individual records should of course remain confidential) and openness about compensation is often a hallmark of high-performing organizations. As the SHRM study goes on to say, "Transparency in compensation plans and policies can lead to increased employee trust and confidence that the employer truly values and rewards performance". As such, compensation management software applications can be instrumental in giving employees access to appropriate information in an efficient and cost effective manner. As well, the benefits to this engagement extend beyond just retention, as it seems a recent CedarCrestone HR Systems Survey found that companies with e-compensation systems achieved an average 10.1% sales growth, compare with 8.8% growth for companies that did not have such systems.

Compensation Management Software Success

In response to a question about the effectiveness of various HR technologies, recent Towers Watson research found that fully 60% of the most effective operations were related to compensation management software features (e.g. market analysis, design and survey management, base pay, global grading, variable pay/bonus, and sales/incentives). It should be noted though, that utilizing this HR software effectively is at least as important as buying the right package in the first place. With Forrester recently estimating that "compensation and benefits" solutions make up an $835M market, clearly the vendors are seeing measurable benefits; the question is whether buyers will continue to see the same upside. End

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Mercer's 2012 report on compensation planning found that although global levels of unemployment have risen, so too has employee dissatisfaction with current employers.


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