Tech is changing the game for compensation managers

Gone are the days of sifting through Excel cells or binders to audit employee compensation on a once-a-year basis.

Employers have more access to compensation data than ever before, thanks in part to laws that have prompted companies to start sharing more information about pay, as well as a push by workers to receive more information about how they’re paid. The proliferation of pay data makes HR’s role more complex, but technology has also evolved to meet the needs of today’s compensation managers.

Thanks to advancements in HR tech, employers can now monitor pay on a more continuous basis, as well as work to correct inequities within their organizations, compensation experts told HR Brew.

A different world

Data collection has changed quite a lot in the over 30 years since David Turetsky, CHRO and VP of consulting at Salary.com, has been working in compensation. “We used to get binders,” he said. “We used to participate in surveys, on paper, get binders back like five or six months later. Now, everything is electronic.”

Historically, companies would typically purchase surveys from compensation consultancies to determine competitive salaries in their market. They might have looked at government data as well, but that was typically the extent of it, Turetsky said. Today, HR can draw not only on compensation data from consultancies, but also payroll companies such as UKG or ADP, as well as self-reported data given to job sites like Glassdoor and Indeed.

With all of this information, “the job of the compensation manager has now become a little bit more difficult,” Turetsky said. “You have to sift through what I like to call ‘noise’ to be able to find what is accurate in terms of how people get paid.”

Technology catches up

As compensation strategy has grown more complex, technology has evolved to meet HR departments’ needs—and more HR chiefs have started looking to invest in such technologies to ensure they’re getting compensation right.

Payscale has seen increased demand for its products specifically in response to pay transparency laws, said Ruth Thomas, the company’s chief evangelist and pay equity strategist. These laws typically require companies to post an estimated salary range for jobs they advertise, and as such are challenging employers “to develop much more rigor in their compensation practices,” Thomas said.

The software Payscale allows employers to access a range of market data in order to determine a competitive pay range for the jobs they advertise. But the company also sells a tool focused on pay equity, which identifies pay disparities between workers based on protected characteristics such as race or gender.

Pay equity—a central goal of pay transparency—has been a key challenge for employers, and one that has driven more technology adoption in the last five years, Thomas said. Historically, humans made decisions about compensation, and as such the process was “fraught with…potential subjectivity and bias.”

“With more transparency, you need more consistency in your pay decisions,” she continued. “And therefore, technology is obviously the ideal solution.” Some algorithms have shown capacity for bias though, Thomas added, so software companies are still figuring out the most effective ways to help employers make “non-biased pay decisions at scale.”

Given that technology now allows HR to analyze pay on a more continuous basis and identify gaps that exist fairly quickly, employers now have fewer excuses to overlook such inequities, compensation industry experts say.

“Because that technology exists now, companies have the ability to see, what have we been doing wrong? And how do we correct it?” Turetsky said. “It’s their responsibility.”

Investing in the right tools

The compensation software market is developing fast, with a projected annual growth rate of 11% over the next five years, so sorting through the different offerings may be daunting. Companies selling compensation tools range from large human capital management firms like ADP, Ceridian, and Oracle, to smaller solutions like OpenComp, Payscale, and Salary.com.

Organizations’ needs will vary depending on their size and pay structures, said John Kostoulas, a VP analyst in Gartner’s HR practice. Use cases for compensation software vary widely, with HR turning to tech for everything from developing a job architecture to performing a “regression analysis” to identify pay gaps, he said.

If you’re just dipping your toe into the world of HR tech for compensation, keep in mind that even a small investment can go far: A Gartner survey found that simply affirming pay equity goals can increase pay equity perception by 17%.