Analyst Perspectives

Compensation management is the practice of strategically aligning worker pay with job roles, responsibilities and organizational objectives. It involves setting pay levels to ensure employees are adequately rewarded for their work while considering factors such as external economic trends, internal equity, budget constraints, tax regulations and compliance requirements.

Historically, organizations have approached compensation planning cyclically, assessing the marketplace at regular intervals to ensure employee remuneration remains competitive and equitable. On the surface, this approach provides a structured way for organizations to gauge market trends, adjust compensation frameworks and budget accordingly. But in an increasingly competitive business landscape, companies must recognize the vital role of continuous compensation planning in ensuring success by mitigating the risk of both regrettable attrition and overzealous outlays on recruitment and retention efforts. Organizations maximizing technology to continuously monitor and adjust compensation plans will be best positioned to remain agile and responsive in an ever-evolving market to mitigate the risk of both regrettable attrition and overzealous outlays on recruitment.

At its core, proper compensation planning requires frequent assessment of existing salaries against current external benchmarks. With shifts in consumer expectations, technological advances and other factors regularly influencing the value of different skill sets, organizations must ensure fair wages for the work being done. In order to provide meaningful incentives to workers – not only financially but psychologically – businesses must be willing to adjust pay scales accordingly and fairly. That said, our research found that nearly all (92%) organizations use spreadsheets in compensation management processes, with more than one-quarter (26%) doing so exclusively.

The level of complexity in the continuous compensation management process warrants the inclusion of dedicated compensation management software in an organization’s human capital management technology stack. These applications can help human resources professionals track and compare pay data to ensure pay equity across employee groups. This not only helps foster a positive and inclusive workplace culture, but it is also important for compliance with changing employment laws and regulations that prohibit pay discrimination, while demonstrating an organizations’ commitment to responsible business practices.

A successful implementation of continuous compensation planning also necessitates careful consideration of internal variables such as job title, experience level and cost of living variations between locations. Organizations with geographically dispersed workers often find it challenging to maintain consistency when developing salary structures across different regions. Without defined processes in place, inconsistencies can result in morale issues or even discrimination complaints. Utilizing consistent metrics can help avoid these problems while still accommodating reasonable adjustments based on local standards.

The benefits of continuous compensation management can be compounded when used in conjunction with continuous performance management. As discussed in this piece, when performance is measured and discussed on a continuum rather than just as an annual process, discussions can actually focus on feedback and development in a productive and meaningful way, rather than just as a delivery format for the annual compensation increase. While performance and compensation should absolutely be intertwined, each has the potential to be more impactful when addressed in smaller bites over the course of the year, rather than just as a single event.

If total compensation factors – including internal and external equity and the competitive talent landscape – are monitored and managed continuously, employers have the opportunity to deliver smaller, meaningful wage bumps or bonuses throughout the year based on factors that could otherwise leave top talent open to external opportunities. Imagine the impact of a regular employee check-in where a manager could acknowledge a worker’s stellar performance on a recent project with a small bonus on the spot, or increase base salary in response to rapid changes in market demand for skills. The goodwill fostered would go a long way toward building trust and engagement.

Compensation management is complex, and continuous compensation management can be even more so. The benefits of this approach, though, can be well worth the investment of time and money. The expectations of the workforce regarding total compensation have shifted dramatically in recent years. Workers expect to be compensated fairly compared to colleagues and the market at large, and that compensation goes beyond a base wage or even a bonus scheme to include nonmonetary compensation. Further, new regulations and laws require pay equity.

For most organizations, annual compensation reviews and market surveys may no longer be enough to meet business needs and mitigate risk. I highly recommend organizations evaluate compensation management practices and consider a shift to continuous compensation management, investing in dedicated software to support the practice.