Having a healthy, competitive employee compensation program can improve existing employee engagement and make attracting top talent a breeze, something that can be a real game-changer with today’s current employment landscape. Compensation in HR management provides data that is in line with your competition to give your hiring managers important information they’ll need when making a job offer to a candidate (this applies to raises and bonuses as well). Additionally, it can help your company remain compliant with Fair Labor Standards Act (FLSA) regulations when you can easily show that unbiased compensation is paid across the board.

So, how is your compensation management program looking? If you’re a business owner and your answer is, “I don’t really know” or “We don’t have one,” keep reading.

What is Compensation Management?

Compensation management is how companies ensure that their salaries and bonuses are equitable, competitive and in-line with market data. The process also includes managing your employee benefits to make sure that your indirect compensation is meeting the needs of your employees. Effective compensation management makes up a big part of human resources because it can have an impact, whether negative or positive, on hiring, employee retention and engagement, and overall company performance and brand.

Types of Compensation

When most people hear the word “compensation,” their minds almost immediately equate it with “employee salary.” While it’s true that salaries play a large part in the process of compensation, compensation methods can include a whole lot more. The process of compensation includes direct compensation (financial) plus indirect compensation (financial + non-financial). Direct compensation is made up of:

  • Hourly wages (including overtime)
  • Salaries
  • Commission
  • Bonuses

Indirect compensation is made up of items such as:

  • Company equity
  • Benefits packages
  • Paid time off
  • Learning & development opportunities
  • Company car
  • Phones and laptops
  • Childcare

The Five Benefits of a Compensation Plan Management Program

  1. It helps ensure pay equity. The data you can collect from your compensation management software can help you determine if there is a gender, race or ethnicity wage gap at your company. Often, this data will uncover discrimination that your HR leaders are either overlooking or unaware of. View the regulations for pay equity in your state.
  2. It can help attract top talent. A good compensation management program can also help you ensure that the salaries your company is offering are competitive. You’ll have all the data you need to benchmark your salaries against the competition and your market to see if you’re either low-balling or being too generous with your job offers.
  3. It can help retain existing talent. While salary makes up a large part of a total compensation package, you also need to include bonuses, health and life insurance, vacation time, the value of stock options, retirement savings plan contributions and pension plans. When you can provide a big picture of your company’s contributions, your employees can easily see how much you’re investing in them. And when employees are happy, they tend to stick around longer.
  4. Reduced administrative tasks. Your HR professionals need to be focused on strategy, not data entry or questions from employees. Managers can be granted access to the compensation management platform, enabling them to see the information they need to make payroll or other compensation decisions without constantly bugging HR.
  5. Fewer errors. Manual data entry in spreadsheets or software solutions that require duplicate entry because they aren’t connected to each other should really be a thing of the past. By using a compensation management program, your compensation manager can greatly reduce the number of data entry errors when information is entered “one and done” and carries across all relevant databases in your human capital management system.

Compliance and Compensation

If you don’t have a handle on your compensation and salary bands across the entire company, you could very easily get into some hot water with the government. If the IRS discovers that you’re paying some folks more than others and there’s a distinct pattern (such as paying men more than women who do the same work), the company could find itself subject to penalties, fines and even lawsuits. Compensation management software can help your company stay on the right side of federal regulations!

Communicating total rewards and compensation to your employees makes good business sense when it comes to outlining the full extent of your company’s value. By implementing a regular system for gathering and distributing this information, your organization can better demonstrate the investment in its employees. If your compensation program isn’t as great as it could be, get in touch. Compensation management systems can help!

How can effective compensation management improve company culture?

When your employees are appropriately compensated, it’s a win-win situation for them and your company. When employees believe they’re being paid fairly they feel more valued and recognized. On the other hand, if they believe they’re under-compensated, they’ll feel underappreciated and likely start the hunt for an opportunity that offers them better compensation.

What are the features that you should look for in compensation management software?

To streamline your compensation process, you should look for a platform that provides a single source of truth to manage compensation, not spreadsheets or duplicate data entry in multiple systems. Automated workflows and guided support tools can help you make more informed decisions and help ensure that salaries, bonuses and employee rewards are equitable and competitive.

What are the objectives of compensation management?

To attract top candidates and retain and engage existing employees through competitive compensation that aligns with your company’s budget, your local job market, and government regulations.

How EBC Can Help

When it comes to trusted HR expertise, turn to EBC for help. EBC offers HR solution’s that range from employee trainings, document customizations, and FLSA compliance.


Having EBC HR & Payroll Solutions, Inc. on your team allows you to move forward with confidence, knowing that we’re doing right by your employees, doing right by you, and it’s all being done in accordance with all the latest rules, regulations, and laws. Our philosophy is to provide a comprehensive, wide range of services to all our clients.

For more information regarding Tax/Banking and Payroll Services provided by EBC, please reach out to Mark Terry, Business Development Consultant at 716.998.4404 or mterry@ebchcm.com and/or Charles Bagley, Sr. Human Capital Management Business Consultant at 716.574.9947 or cbagley@ebchcm.com

Source: Paycor Blog