Compensation management is behind the times, with many comp processes still being done manually. Chief people officer of PayScale, Shelly Holt, shares how to evaluate compensation technology to ensure a solution that creates efficiencies and generates positive outcomes.
Powerful currents are reshaping the future workforce, from artificial intelligence (AI) and automation to increasing demands for diversity, equity, and inclusion. Expectations for transparency are also at an all-time high. This is especially true for compensation.
Employees want to know that they are paid fairly and are increasingly turning online to look up salary averages for their position. Because this data is so readily available these days, employees expect organizations to have a data-driven approach to compensation and conduct transparent conversations about how they are paid.
Organizations, of course, want and need talent to be motivated. Most business leaders know that perceptions around the fairness of compensation are critical components of employee engagement and impact turnover.
However, not every organization’s compensation management process has kept up with the changing times.
Compensation Management Is Still a Manual Process
Managing compensation requires a significant amount of data analysis, and a lot of it is still done manually. According to PayScale’s Compensation Best Practices ReportOpens a new window , over 49% of organizations rely on spreadsheets to manage compensation data sources, and 69% use spreadsheets to manage merit increases, which still tend to happen only once a year – if they happen at all.
In addition, only 32% of organizations train managers to have conversations about pay with employees, resulting in many managers not being able to answer employees’ questions about pay when it comes up. It can even discredit them when they say they have to ask HR.
Going to HR is not always an available solution. These days, employees expect transparency from their leaders and managers. The challenge is that many organizations have no processes to manage compensation beyond the initial job offer. This is complicated by a lack of data and automation when managing merit increases, a component of what enables transparent conversations. Size of company does not mean more automation either – larger or more mature organizations still perform more manual analysis than is necessary.
That’s where compensation technology enters the picture.
Learn More: 10 Return-to-Work Compensation Strategies for Remote & Furloughed WorkersOpens a new window
3 Crucial Tips To Evaluate Compensation Technology
The promise of compensation technology is to make both access to salary data and management of compensation easier. However, not all compensation technology is the same. There are three key things that you should evaluate and expect from your compensation management technology.
1. Salary data should be trustworthy and compiled from multiple sources
Not all salary data is created equal. One misconception is that all compensation technology solutions essentially use the same data – or that salary data can be purchased from your preferred sources for upload and analysis within whichever technology software you choose.
This is not the case.
Data is not collected, validated, or accessible in the same way across all compensation technology products on the market.
Many organizations rely on survey data purchased from third-party consultancies who get it from actual employers, which is regarded as the most accurate and reliable data source for pricing jobs. However, even the integrity of employer survey data can be threatened if the data’s context is lost.
Some compensation technologies procure, rehash, and age survey data in a black-box process, which cloaks where the data originated from and can erode the reliability. In addition to not knowing where the data came from, you also don’t know how old it is.
This situation is no better than when an organization relies solely on their own internal salary data for setting pay, which can be problematic if their data is out of date compared to the market, especially for roles where demand has outpaced supply or certain skills are earning a premium. Certainly, historical data on salaries within an organization is still useful, but this is one source that should be cross-referenced with additional external sources to triangulate the data and validate that the benchmark for each job is correct.
Ideally, compensation management technology should help automate this process without cloaking the original source of the salary data. When considering compensation management technology, make sure you inquire how data is procured, altered, and accessed within your compensation technology. You should look for transparency and a solution that allows you to use multiple sources of data to determine pay.
Learn More: 3 Ways Compensation Technology Can Create an Equal and Fair Workplace
2. The platform must provide insights to make decisions
Data alone is not enough. A spreadsheet with rows of salaries attached to a corresponding column of employee names is not very useful by itself. You must be able to get meaning out of data. Doing this requires being able to visualize data in different ways and across multiple factors.
However, not all compensation technology solutions offer robust options for analysis. Having access to reports that make it easy to see these options and make decisions is critical. For example, you should be able to see which employees have earned an increase based on performance. You should also be able to generate your own custom reports to visualize what may be specifically relevant to your organization.
Examples of common report functionality to look for include:
- Merit increases
- Market adjustments
- Pay compression
- Pay equity analysis
3. The platform saves on manual tasks
Your compensation technology should be making you faster and better at managing compensation. Technology should act like an additional team member, crunching the numbers for you and freeing up your people to spend more time on analysis and strategic initiatives.
At a minimum, this means that the application works as intended. In other words, it loads quickly, is safe and secure to use, and helps you calculate salaries for jobs and determine raises. Although this may seem like a minimum bar, it’s still a good idea to confirm that the technology you invest in will meet your needs from a performance standpoint.
You will also want to make sure that your compensation technology can simplify more complex tasks related to compensation management and evolve with your organization so you can become increasingly strategic. This includes everything from AI recommendations to help you price hot skills to simplifying the survey participation process.
Bonus Tip: Consider Vendor Service Levels Before Purchase
A fourth contender for evaluation that will matter to some organizations more than others is the technology vendor’s service levels. Services include more than the support given to onboard and educate users on how to use the platform. Ongoing services will likely be needed to answer questions, respond to issues with the technology, and ensure that the organization is successful. Some organizations may want a dedicated account manager.
Services are especially important for organizations that are new to compensation management as a discipline. These organizations may be interested in professional services to benchmark their jobs and review or build their compensation structures. After setup, organizations may also be interested in professional services to help training managers on pay communications or to build out custom reports.
Not all compensation technology companies are the same when it comes to support, so it is worth asking about service levels when evaluating a new partnership.
The Business Impact of Compensation Technology
Compensation technology should create efficiencies that lead to fairer, more competitive, or more equal pay throughout the organization. The right solution should pay for itself many times over by enabling an organization to approach pay intentionally as a critical component of your people strategy.
The right strategy can increase offer acceptance, lower unproductive turnover, and strengthen overall employer branding. For example, PayScale has a customer who has reduced turnover for critical positions by over 20% due to being more competitive for talent in their industry and more transparent about their pay processes with employees.
At the end of the day, compensation technology should empower your organization to spend less time manipulating spreadsheets and more time differentiating your organization as a great place to work.
Which best practices have you considered to evaluate compensation technology in your organization? Tell us on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window .