Compensation Management’s Most Common Failure Points That HR Can Fix

Compensation Management

Compensation management is a tool that drives organizational success by motivating its employees. Business experts believe employee retention has a major role in this case. For that, HR uses different techniques. One of them is compensation plan management to boost productivity.

But are these tools really reliable?

The answer is yes. However, it is unavoidable that issues regarding these tools arise from time to time. Thus, it is important to know what the most common failure points are. This way, HR can provide an accurate compensation management solution to address the issues.

Why Do Businesses Need Compensation Management?

Compensation in HR is very important. Satisfied employees support businesses with commitment and goodwill. The team invests efforts when companies appreciate them.

A business must understand how beneficial teamwork is and use a compensation plan as a tool. The HR department can also work to build a strong workforce. The goal is to practice different compensation elements for direct and indirect compensation.

The compensation management plan offers employees monetary and non-monetary benefits. This is sometimes to encourage them and most times to appreciate them. Compensation keeps the staff motivated while maintaining a healthy culture in the company.

Considering the benefits of a fair compensation plan, businesses must implement it in their company. It’s also a high priority to do the right thing. But, HRs can overlook fundamental points of the program as they juggle between tasks all day.

Common Failure Points in Compensation Management

Leak points in your compensation plan can have detrimental effects on your business. This is why it is of utmost importance to understand these issues to address them effectively.

Most common issues include:

1. Failing to Understand Business Strategies

A business strategy is what provides a strong base for your company. So, to tweak the system for improvements, you’ll need to understand your business plan. You must understand what your business is at the core.

If not, you may struggle to develop a viable compensation management solution. So, understanding your goals and motivating your employees in the same way. This is the first step in problem-solving and implementing compensation trends.

➢ Solution for Business Compensation Analysis

If you don’t yet have a defined compensation framework for your business, you must plan one. It’s essential to craft employee incentives and salary ranges. You can prepare important business points and move to set a measure. But, it must support your company’s vision.

The HR department can begin by having predefined productivity goals for weekly or monthly employee performance to decide on the compensation. Using a compensation management solution also helps here in analyzing the collected data.

2.  Wrong Data Assessment

Using outdated data can risk injustice and inefficiency in your company. So, the direct compensation strategy must be competitive to entice. You can compare it to your company’s and market’s data later on to ensure it.

Tracking an employee’s progress, work schedule, and professional struggles helps big time. But, if you lack the right information, you lose the right candidates. Your proposals may not be as attractive as you believe they are.

➢ Solution for Avoiding Wrong Data Assessment

You can construct your monetary goals using reliable data sources. This also includes using a smart compensation management solution. You can also use pay surveys on the web that offer data from employees for businesses to have a clear idea. An option is to obtain real-time input from recruiters, supervisors, and feedback forms.

3. Use Communication Management Solutions

Compensation management is a time-intensive task. With tons of data to organize and analyze every day, you can swamp under the workload. So, you will need some assistance and a helping hand.

Using a project management app for Android or iOS can also be a resource. But you must choose depending on the sensitivity and flow of data assessment.

➢ Solution for Improved Compensation Management

The software uses features that help with effective compensation plans. These compensation management software boost productivity and healthy employee engagement. The main tasks include calculating and budgeting the total direct compensation.

4. Be Fair in Compensation

Negotiating salaries can result in unequal compensation decisions at the time of recruitment. Compensation disparity is counterproductive for company culture. There are 70% of men and women who negotiate their first salary offers.

It sounds normal, but how many succeeded? Only 7%, more likely men. Yet, a company must compensate employees according to their compensation plan. It should be less about people’s negotiating skills.

➢ Solution for Establishing Equal Pay Standards

The first step to mitigating unequal compensation plans is creating a payment strategy draft. It must include different job levels and wage ranges for each role. You can also use compensation management software to aid you in the process.

Use your metrics during recruitment and each compensation cycle to make fair decisions. Do not strain your budget by offering more than you can afford. Keep the employee’s role in the company so you can provide direct or indirect compensation.

5. Communicate with Employees

Communicating with your teams is a helpful step for clarity. You can avoid the entire business strategic confusion by forming functioning compensation systems. Talk to your employees about their responsibilities to the company’s moving forward.

There can be mistrust in the case otherwise. You can also promote salary transparency among your employees. A little salary disclosure can make a big difference.

➢ Solution for Promoting Pay Transparency

Tell your employees why they receive their current salary and how they can earn more. You can, for example, tell that the employee can learn a new skill or enroll in a degree program. Explain how staff can rise to higher salaries or win increments. Motivate them for competence, responsibility, or responsibility to ensure business growth.

Pay transparency might mean different things to different businesses. So, figure out what fits your business model and work environment better. This could involve disclosing job levels, wage ranges, or even individual incomes.


Compensation management lifts your employees’ spirits to work better and be productive. It’s a way to let the team member feel seen and heard which is highly recommended. So, implementing a compensation plan will be fruitful for your business without any slips.

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