Compensation management involves cost control, pay fairness, legal compliance, and more. Moreover, compensation management software helps automate and streamline processes and provides data and insights to improve compensation strategy.
Compensation management directly influences employee happiness and the company's capacity to recruit and retain talent.
According to this Glassdoor survey, 67% of job searchers stated pay and compensation were among their top factors in choosing where to work.
In this blog, I’ll cover what compensation management is, it's objectives and benefits. I’ll also highlight the key features, pricing, and customer reviews of four excellent tools to manage your compensation plans.
What is compensation management?
Compensation management is the process of establishing, executing, and determining employee pay levels, perks, and incentives.
It seeks to recruit, retain, and inspire salespeople by offering fair and competitive pay packages based on market compensation analysis. Tying compensation and incentives to individual and organizational success also assists firms in aligning employee behavior and performance with company objectives.
Who takes care of compensation management in a company?
HR department, specifically HR managers, compensation and benefits specialists, or a dedicated compensation manager, handles compensation management
Objectives of compensation management
Here are the eight main objectives of compensation management:
1. Attracting competitive talent pool when hiring
The salary package is critical in drawing skilled personnel to the business.
This guarantees that the business gets to choose from a bigger pool of candidates and also helps develop a favorable image for the firm in the employment market.
So how do you do that?
You should examine elements that attract talented people by benchmarking with your competitors and industry.
This includes providing career progress along with work-life balance and an employee-friendly work environment.
2. Cost control and budgeting of payroll and measuring ROI
Compensation management helps control payroll expenses by ensuring that remuneration is based on market norms and that employees are compensated based on their abilities and experience.
This may entail performing frequent market surveys and revising remuneration packages as needed.
Cost control measures help guarantee that the company is not overpaying or underpaying employees. Detecting underpayment is also necessary as correcting it on time is a way of cost control instead of waiting till voluntary attrition.
3. Ensuring pay fairness with a pay structure and hierarchy
Controlling costs is important, but so is ensuring employees are paid fairly for their work. Paying fairly means you have a transparent review and appraisal system along with a fair structure for all employees without bias. Striking this balance helps you avoid discrimination based on gender, race, or other personal traits. Fair pay also reduces the chances of legal issues. To ensure this, you need a well-defined pay cycle and a robust payroll system.
You must regularly evaluate pay satisfaction with your employees using a survey or 1-1s and frequently resolve discrepancies.
4. Ensuring legal compliance of minimum wage and commission
As a part of compensation management, you should also ensure that a company follows labor laws related to pay and benefits that include minimum wage laws, overtime rules, and other compensation-related regulations in your state.
5. Motivating sales employees with performance incentives
Pay management may inspire employees by giving incentives, bonuses, and other benefits for outstanding performance. This can boost employee motivation, leading to higher productivity and better company results.
Additionally, you should explore other methods of motivating personnel like:
- Offering chances for employee engagement.
- Participation in decision-making.
- Recognition programs.
- A good work atmosphere that fosters cooperation and collaboration.
6. Enhancing productivity
You can use compensation management to increase productivity by tying sales compensation to goals set and achievement. Some parts of the compensation, such as variable pay that includes commissions, incentives, etc., are linked to sales performance and reviews.
This helps in aligning employees with business goals and boost productivity with incentives.
7. Improving job satisfaction with employee benefits
Comp management also includes employee benefits like health insurance, retirement programs, and more contributing to employee well-being.
You can also take measures to create a good work environment that appreciates employee feedback and fosters a work-life balance.
8. Retaining talent
Retaining salespeople is just as crucial as recruiting them in Human Resource Management.
Making employees feel valued is a key factor in retention. This involves offering a competitive compensation package and opportunity for progress.
The firm should also guarantee sales employees that they are adequately rewarded with variable pay for short-term achievements and their overall pay packages are evaluated and benchmarked regularly.
Benefits of compensation management
Here are a few benefits of compensation management:
- Increased performance and productivity as good pay management help firms recruit and retain people and boost employee motivation and engagement.
- Aligning remuneration with the company's current funds and projected revenue can help improve overall company success.
- Comply with the local and national government's compensation and benefits norms, allowing you to maintain a good reputation. It also enables you to get future loan approvals etc.
- Ability to recruit and retain skilled people, enhance motivation and engagement, and accomplish corporate objectives using effective pay management strategies.
On the other hand, poor pay management procedures can result in excessive staff turnover, low morale, and lower productivity.
That’s why companies should have fair and competitive remuneration packages based on market research and connected with corporate objectives.
Read: When is sales commission legally earned
Wrap Up
Compensation management is a mix of strategy and people science. It helps attract the right sales talent, maintain legal compliance, and fairly reward employees for their efforts.
To streamline compensation planning and management, use specialized compensation management tools like Paycom or UKG Pro to analyze important data and get valuable insights.
