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What is Compensation Management and Why it’s Important?

Melis Oktay
What is compensation management and why its important?
What is compensation management and why it’s important?

Finding suitable people with the right talents to work in your organization is one of the most challenging parts of running a company. But the real challenge begins after that; managing to keep them in your workforce for a long time opens another chapter in the game, and things may become a little more difficult here. Because the longer people work together as a team, the easier they can develop new ways of efficient teamwork. And as you can expect, fairly compensating your employees is one of the most efficient ways to form a stable workforce. But even though it’s easy to say that a bigger salary equals happier employees, it’s impossible to both increase your employees’ wages as they wish and stay within the limitations of your company’s budget restrictions. According to research done by Deloitte, employee compensation is 70% of a company’s total costs1, so poor compensation management can ultimately lead to severe budget deficits.

That’s where compensation management comes into the picture; to provide your employees with enough financial value for their efforts in your organization and keep your compensation practices in line with your company’s budget. 

What does compensation include?

One of the first misunderstandings about compensation is that generally regarded as only workers’ salaries. But since the salary is not the only thing that employees account for when assessing if they are getting enough financial return for their job, it’s impossible to reduce compensation to just workers’ salaries. On the contrary, it includes extra financially valuable elements like employee benefits, bonuses for in-job achievements, or rewards. With a thorough understanding of compensation, you can create a system that keeps your employees happy and financially satisfied without negatively affecting your organization’s budget.

Why compensation management is important? 

Compensation management is vital for all organizations as it can impact employee retention, job satisfaction, and organizational performance. Employees who believe they are being compensated enough in exchange for their time and efforts will feel that their organization values them. They will be more engaged with their job, and they will be more likely to stay with your organization for a more extended period. More, having a successful compensation system attracts more qualified candidates, so it’s effective in creating a more competent workforce, too. 

Besides attracting new talents and retaining your current workforce, there are many more benefits to creating an effective compensation management system, such as a more seamless HR process in your organization and reduced time and effort spent on payrolls. Compensation management systems also play a pivotal role in setting salary packages and ensuring compliance with legal norms and guidelines. The transparency of the process makes it easier for employees to understand their rewards and motivates them to perform better, as they know what they need to do to be promoted.

How to create a fair compensation system?

Since a compensation management system is an essential part of any organization, it’s important to find the right design for your company, the qualities of your existing employees, and the desired level of competence of your workforce. Several steps need to be considered to create a compensation system that benefits both your organization and your employees;

  • Evaluation of current compensation practices and deciding what you can do to improve employee satisfaction.
  • Assessment of internal labor market and identifying company’s compensation practices for internal mobility.
  • Job analysis and determining pay ranges & benefits for each position based on the internal labor market. 
  • Examination of external labor market trends and manipulating your compensation management to stay competitive.
  • Developing a range of total rewards packages for employees, including salary, benefits, bonuses, paid time off (PTO), education tuition assistance programs (e.g., tuition reimbursement or academic scholarship), career development opportunities (e.g., training or mentoring)

Streamline your compensation management with Kolay

With the workforce management services of Kolay, it’s now easier than ever to manage your employees’ compensations and create a beneficial system for your employees and your organization. Kolay helps you track all your company’s expenses and bonuses given to your employees and lets you make goal-based and competency-based performance evaluations to help you decide how you should compensate each of your employees. Also, you can create a compensation management process structure where you can adjust your employees’ salaries and let them approve or request for reconsideration of their wages. Finally, you can report all the compensation review processes with just one click and start your next compensation evaluation process one step ahead. If you’d like to see how you can create a compensation management system tailored for your organization, you can now start trying Kolay now for free!


1- https://www.decusoft.com/what-is-compensation-management-a-complete-guide/

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