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What We Wish Everyone Knew About Compensation Management!

7 min read

With the increasing diversity of our workforce, it is more critical than ever for HR teams and corporate leaders to find new ways to keep employees engaged and driven. In order to ensure that the expectations and requirements of the employees are fulfilled, it is important that they are adequately paid.

Companies must go beyond manual pay planning to explore the value of using compensation management software. With the right resources, the company will be able to take into account the various aspects used in the overall rewards program and help HR leaders streamline their processes.

In this post, we will take a deep look at the many moving pieces of the compensation strategy while analyzing whether companies should make use of a compensation solution and why. Finally, we will touch base on how to make the business case for the adoption of solutions that help HR teams prepare and deploy complete compensation plans effectively.

What is Compensation Management?

Compensation Management is the process of evaluating, managing, and determining the salaries and perks at the organization in order to ensure that they are fair and reasonable. It also plays a vital role in planning the compensation benefits program for the workforce to meet their current expectations.

Compensation managers are the ones who aim to attract and retain employees with competitive pay and benefits packages within the company budget. If overlooked, this can negatively impact the organization as this will result in employee dissatisfaction and motivate them to search for better compensation packages elsewhere.

An appropriate compensation plan ensures that the employees get a fair package based on:

  • Performance
  • Experience
  • Market Competitiveness
  • Company Budget

Why Should You Care About Compensation Management?

People are in search of opportunities through which they can best position themselves financially. Compensating the employees fairly shows that you respect and value them as an individual. This definitely impacts the employee morale positively and enables them to be more committed by delivering better work performance.

In addition, as employees know that there are incentives or commissions, they are constantly encouraged to achieve greater outcomes. Morality and employee satisfaction are directly proportional to pay. Often there is an equilibrium (equity) that must be achieved between the monetary benefit that the employer wants to pay and the value and appreciation that the employee feels.

In an effort to cut costs, employers can opt to stop wages or salaries at the cost of contentment and morality, which is highly risky and the outcomes will be based on the kind of industry, organization, and workforce. On the other hand, employers wishing to reduce the employee turnover rate can aim to increase their compensation and pay levels to make sure that their employees feel valued and satisfied.

And in case of exceptional job performance, you can always reward them in form of bonuses, incentives, stocks, etc.

Pre-requisites of an Effective Compensation Management System

Now that you know why effective compensation management is essential for any organization, the next thing you need to be mindful of is the way you set up your compensation management process.

Hence, here are some pre-requisites that will help you beforehand to set up an equitable and effective compensation management system:

Competitive Salary Scales

Develop compensation scales to ensure that employees’ pay is competitive as compared to other businesses. In order to be competitive, it is necessary to benchmark similar roles within the same industry and to establish a pay structure.

It is wise to look at all positions and to decide what work is done, how work will be done, and to set pay levels that correspond to all job descriptions.

Compensation Audits

Markets are changing, thus, it is necessary to carry out annual wage audits to ensure that pay ranges match market patterns in wages in a specific sector. The objective of the audit is to assess how lucrative those individual positions are and what the external competition demands.

Employee Value Proposition

It is important to understand the compensation policies of your company and how they fit into the culture of your company. An employee value proposition is a collection of principles for the company that helps you to recruit, retain and engage employees. It can be summed up as what the organization can offer to its employees.

Compa Ratio

Often referred to as a ‘comparison ratio’ or ‘compensation ratio,’ a compa-ratio can help companies compare how much of the rise they pay to an existing employee. The compa ratio is a percentage that can be calculated by dividing the real salary of the employee by the mid-point salary for that position. It’s a vital instrument to help employers decide how much of an increase they’re giving to an employee.

Final Words:

Given the complex nature of compensation planning and the many factors involved in determining a compensation plan, it is not for the faint-hearted HRs! But that doesn’t mean it’s impossible. A right Compensation Management Software that intends to pay its employees fairly and competitively will help you simplify this process and manage it efficiently.

Providing the right to compensation is increasingly necessary for organizations. It also means the difference between attracting top talent, reducing attrition, driving higher profitability, and building competitive advantages. Using the correct, fit-for-purpose compensation management software will actually make guesswork out of compensation and incentive planning and offer much-needed predictability for controlling the organization’s greatest cost.

And Keka has recently introduced its new compensation management tool that is designed to serve all your compensation concerns. To know more, check out our feature release blog here.

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    Meet the author


    Content Writer

    Bhagyashree Shreenath is a full-time Content Writer at Keka Technologies. She is very passionate about writing and loves to write about the gaps in organization & human resource management strategies to handle the related concerns. When she isn’t writing, you will find her reading a book, or exploring new places.


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