The biggest expense of most companies all over the globe is employee compensation. Since it plays such a huge role, you must execute the compensation well to ensure it brings business benefits. Poor execution can more than often lead to many problems – both expensive and irreversible.
On this account, compensation management software allows you to properly execute and check the compensation strategy of your business. This analysis ensures that the compensation turns into your competitive advantage and not otherwise.
Read on as we go through the ins and outs of compensation management software and its advantages and disadvantages.
All about compensation management software
Compensation management software is an essential aspect of modern human resources in almost every industry. Statistics say that about 70.3% of the total employer costs are compensation alone. When there’s so much money involved, it is more than essential that the HR teams are vigilant regarding compensation management.
A compensation management software takes you over and above manual spreadsheets and ensures there is a proper compensation planning solution. You will also receive a compensation review plan to showcase to the senior management as per different metrics.
Moreover, effective compensation management software involves strong planning, budgeting, and forecasting functions that track headcount and salaries as per the available data.
What are the advantages of compensation management software?
There are several benefits associated with opting for compensation management software in your diverse workplace. We have jotted down the top ones for you here below.
i). Reduction of error
Spreadsheets and many other programs can be used for the same job as compensation management software. The only difference is that the error margin is quite high.
Instead, if you keep all the data and tools on the program, the chances of errors will decrease rapidly. Administrators will be allowed to have user-based restrictions and particular budget controls to be used as fail-safes.
With the help of these features, if you add incorrect information, an alert will be instantly generated. So, the overall chances of errors will be reduced, and there is proper training before using the compensation software again.
ii). Saving up
Having all the HR programs and data in one place can be highly advantageous. It is a common fact that most companies spend a lot of time and resources on the compensation planning cycle.
These HR tasks could begin with shoring the staff or setting up streamlined compensation planning. An efficient compensation management software will aid you through it all.
iii). Simplification of complex rewards and bonus packages
Compensation processes are easy if you are a small local company with a limited workforce. Now imagine if you run a global or regional firm with several employees in a hybrid model.
Since there will be varied currencies and differing cultures involved, compensation management software will be succinct enough to handle all these compensation plans and complex packages. This process will allow you to concentrate better on other aspects of the business.
iv). Better transparency
Running a firm means that you need to be transparent with your employees. There are numerous inequities in terms of pay based on gender and race in the USA. On this account, you must ensure that the reward system is equal.
Addressing pay inequities ensures that the workers’ morale is high, and so is their productivity. Many times companies underperform in the market because of these pay inequities.
Additionally, this will also reduce employee turnover in the firm since they will receive equal pay, and there will be better transparency.
v). Decreased employee turnover
As per Gartner, the employee turnover rate in the USA is expected to reach 20% by this year-end. You can lose more than a quarter of your business employees because of such voluntary quits. And low or mismanagement of compensation could be one of the major reasons behind this employee turnover.
Using effective compensation management software can ensure that this doesn’t happen to your business.
vi). Better employee engagement
You must invest in regular feedback from employees to know where you stand in terms of their satisfaction. And rest assured, compensation is one of the main aspects that can make or break employee happiness.
This is where compensation management software comes into play! This software usually has an employee feedback feature installed. So, you can receive real-time feedback from your employees on the compensation package and the entire system for better functioning.
Customer experience can be bettered by leaps and bounds with this information and a sorted compensation management software.
What are the disadvantages of compensation management software?
Well, despite the tonnes of benefits that come with compensation management software, there are certain negatives to the system as well. Although they are minor, you must keep these cons in mind before investing in compensation management software. Let us look at the main disadvantage linked with these:
i). Software security and data protection issues
Just like other technologies and IT systems, compensation management software also come with a set of weaknesses. Some of the common issues associated with using these systems are related to data issues. These could be:
- Data security, loss or identity theft
- Fraud and cyber security issues
- Access to information, control, and quality
Another seeming limitation of compensation management software is the costs that come along with it. Overall, you will spend more on this system when compared to the manual payroll or compensation management systems. Moreover, you would also need computer equipment, skilled operators, and resources for the proper functioning of this software.
In case you don’t have these resources, it is safe to say that you will have to invest money in these to see the positive results of compensation management software.
We have also compiled some of the commonly asked questions when it comes to compensation management software. Read on.
1). What are the different types of compensation systems?
There are five essential types of compensation systems in modern workplaces. These are:
- Commission system
- Bonus system
- Piece rate system
- Skill-based system
- Merit pay system
2). What are the components of compensation?
Compensation consists of four major components, namely:
- Base pay – by hourly basis or salary per month
- Salary and wage addons
- Incentive pays based on employee performance
3). What are the keys to an effective compensation strategy?
There are seven major steps that an HR team should take to devise an effective compensation strategy. They are:
- Budget allocation
- Setup of the benefits package
- Legal compliance
- Salary audits
- Develop specific salary ranges
- Performance management system
- Structured administration
Overall, compensation management software is a great tool that has high efficiency along with cost gains. You are assured of simplifying your complex compensation packages and planning process.
Furthermore, it also elevates employee engagement through constant feedback and enables your transparent compensation system. All in all, we highly recommend going for a reputed and efficient compensation management software.