Which is the best way for the HR manager to evaluate the effectiveness of the new compensation system?

The right compensation management software can help you make compensation your competitive advantage. It can give you instant insights into total employee compensation, so you can see how you’re using your organization’s single biggest operating expense. It can let you forecast salary changes and see market trends in real-time. It can take the stress out of compensation review cycles for stakeholders, and help create an overall better employee experience for everyone. And it can do all of this in one place, without spreadsheets or subpar all-in-one software.

If you’re ready to evaluate compensation management software, here’s how you can get started.

Consider your strategic priorities and needs

The first step in evaluating compensation management software is to consider your organization’s strategic priorities and needs. Rope in key stakeholders to discuss your must-have requirements in a new compensation platform, and any additional nice-to-haves.

For example, you may want to:

• Provide a better experience for your stakeholders during regular review cycles.
• Prioritize pay equity within your organization. 
• Access better compensation analytics to use your budget most effectively.
• Support your remote compensation strategy.
• Create a better employee experience around compensation and improve retention.

Rank each of these focus areas so your evaluation team knows what to focus on. This exercise will help you compare different compensation management software options against the same criteria, so you may choose the best fit for your organization.

See the software in action

Run some web searches and collaborate with peers to build a list of solutions you’d like to evaluate. Schedule a preliminary demo with your desired vendors to determine whether they meet your requirements, and take note of their strengths and weaknesses as they relate to your needs. 

Then, choose two or three solutions for in-depth demos with additional internal stakeholders. These may include power users in HR and Finance, company leaders, or line managers, so you can evaluate the software from multiple perspectives.

Come prepared with an evaluation checklist to ensure you cover all your questions. For instance:

• Features. Ask specifically how the product can address your strategic priorities and needs, and see them in action.
• User experience. Take note of the user experience for power users in HR and Finance, as well as anyone else who will be using the tool (such as company leaders and line managers during review cycles).
• Integrations. Learn how the product works with your existing HR tech stack, including your HRIS and performance management system.
• Implementation. Ask about the implementation process and timeline. You will want to make sure it won’t impact any upcoming review cycles.

Speak with customer references

Before making a final decision, you may want to speak with a customer reference to get feedback from a current user. Ideally, speak with someone from a company similar in size to yours to get a feel for how the solution would work within your own organization.

Some questions you might want to ask include:

• Why did you select this vendor?
• How well has this solution met your expectations and requirements?
• What are the biggest benefits you’ve realized since using this solution?
• Where could this platform improve?
• Do you use this platform to help with [strategic priority]?
• What feedback have you received from your end users?
• What did the implementation process look like, and how long did it take?
• How do you find the quality of support?
• Would you select this vendor again?
• Is there anything else you could share to help us make this decision?

Final thoughts on evaluating compensation management software

The right compensation management software can vary by organization. Keep your strategic priorities in mind throughout the evaluation process to ensure you find a solution that meets your needs now—and in the future. 

Not only that, but make sure the solution you choose will work for all of your internal customers. Siloed data, clunky all-in-one software, and outdated spreadsheets make the complex world of compensation even more challenging to handle. Make compensation your strategic advantage by investing in a solution that will improve the experience for everyone.

Organizations use a compensation strategy to define how it views and manages employee pay and benefits.

The strategy serves as a guide and should be outlined in a written document that clearly articulates the organization’s approach to managing employee compensation.

Why Is A Compensation Strategy Important?

An effective compensation strategy motivates current employees and is used as a tool to attract new ones.

People often think of compensation as merely a salary. However, the total cost of employee compensation includes every aspect of employee benefits.

This includes the cost of health benefits, retirement benefits, tuition reimbursement, bonuses, or any other non-salary benefit that is considered part of a total compensation package.

1. Budget Allocation

The strategy should include the organization’s approach to allocating compensation dollars into salary and benefits.

This budget allocation will determine how much of the total compensation budget will be spent on salary and what percentage will be spent on benefits and other incentives.

For example, for a budget of $100,000 for compensation, if 90% is salary and 10% is benefits, you need to determine how that 10% is spent.

One scenario might be – 7% on health benefits, 2% on retirement savings, and 1% on tuition reimbursement totaling 10%.

Example Compensation Package Cost Breakdown

Allocate specific budget dollars to salary and benefits to help control labor, health care, and other miscellaneous benefit costs.

2. Develop Salary Ranges

Develop salary ranges to ensure employee pay is competitive with other organizations. 

To be competitive, it is important to benchmark similar jobs within the same industry and creates a pay structure.

Salary ranges can be developed internally by conducting research or utilizing sites like salary.com or payscale.com to determine average salaries in a particular geographic area.

Smaller organizations often pay a vendor to help develop salary ranges, whereas larger organizations may have the HR resources to conduct the research internally.

Regardless, it is important to look at all jobs and determine what work is done, how the job is slotted, and establish salary ranges that match all job descriptions.

3. Conduct Salary Audits

Markets change, therefore it is important to perform routine salary audits to ensure salary ranges reflect current compensation trends in a particular industry.

For instance, we are in a tight labor market. This competition for talent has forced organizations to increase pay to attract and keep top performers.

The goal of performing a salary audit is to determine how competitive particular jobs are and what the external market demands.

Ask the question, is it a growing or dying profession?

For instance, technology is incorporated into all aspects of the business. A technical job may be more competitive than a job that pushes the paper that technology now manages.

It is important to pay attention to market changes and to stay current. Failing to keep up with the competition can lead to the loss of valuable employees.

4. Determine Total Benefit Package

Many organizations use benefit packages, in addition to salary, to attract and retain employees.

Their goal is to be competitive with health, retirement, tuition reimbursement, and other benefits.

Businesses invest in generous benefits packages because they understand that those benefits may be the determining factor for a job candidate who is deciding whether to accept a position with an organization, or an employee who is considering leaving.

For instance, I know employees who have stayed with organizations because the benefits were too good to walk away from.

Just remember, it’s always good to have a low turnover rate, you just don’t want to carry the dead weight of unproductive employees that add no value to the organization.

5. Manage Employee Performance

It is important to have a structured performance management process to ensure employees are meeting corporate objectives and are assessed regularly.

This process should include the development of annual goals, annual performance appraisals, and a structured process for coaching and mentoring employees.

Compensation strategies can positively influence employee engagement and improve employee productivity.

6. Maintain Legal Compliance

A well-defined compensation strategy will incorporate legal requirements to ensure the organization is in compliance with all federal and state laws.

The goal is to eliminate natural biases made in hiring decisions and ensure compliance with DOL FLSA laws such as minimum wage, overtime pay, or Lilly Ledbetter Fair Pay.

Become familiar with the US Department of Labor website and subscribe to their email so you are alerted to changes in federal laws.

7. Create Structured Administration

As with any other business process, the structure of your compensation program is important. 

Develop an annual review process that includes a salary audit, establishing a raise process timeline, and making sure someone is responsible for all compensation areas.

For instance, delegate responsibility for each area and include those responsibilities in the employee’s job description and annual goals.

A Compensation Strategy Can Improve Employee Engagement

A comprehensive compensation strategy can be the foundation for creating an environment that recognizes and rewards employee performance and helps to establish a strong culture of employee engagement.

Organizations are only as successful as their approach to hiring the right people, setting clear expectations, managing performance, and recognizing and rewarding employees for a job well done.

A compensation strategy is the first step in getting the right people in the door and keeping them.

There are lots of great books that can help you get started with building your compensation strategy.

The Compensation Handbook might be additional help for you and a great resource to add to your library!