What Is Compensation Management Software (And Why You Need It)

Employees who suspect they’re not being paid fairly aren’t likely to stick around for long. But many companies rely on ineffective, outdated ways of managing compensation — which means they have little to no idea if their salaries are really competitive. The solution? Compensation management software. 

With the right tools, companies not only simplify HR processes but also ensure their pay practices are fair, transparent and aligned with the market. Keep reading to explore the benefits of compensation management software, key features to look for, and why it’s a necessity in 2025. 

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What is compensation management software? 

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Compensation management software is a type of software tool that helps employers manage different aspects of compensation. These provide HR teams with a clear, data-driven view of pay across the organisation, making it easier to create fair and competitive compensation strategies. 

These days, there are various compensation management software platforms to choose from. Depending on the solution you opt for, features might include pay benchmarking, salary band generation, and even semi-automated compensation reviews. This all helps companies streamline processes and make informed decisions about pay.  

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Key features of the best compensation management software

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The best compensation management solutions come with a range of features designed to simplify and enhance compensation management. Here are a few things to look for:  

• Salary bands and pay structures: Designing and implementing salary bands is a lot of work — without the right tools. Compensation management tools like Figures allow you to create custom, scalable salary bands for your entire organisation in minutes, not weeks.   

• Accurate, filterable market data: Competitive pay starts with reliable data. Leading compensation management platforms provide up-to-date benchmarks that can be filtered by industry, company size, location, funding stage and more — so you can make accurate comparisons and stay competitive. 

• Role-based permissions: Compensation involves a lot of different stakeholders, but not all of them need access to your entire pay structure. Advanced platforms like Figures let you control who sees what based on job title, seniority and other criteria, keeping sensitive information safe while ensuring the right people have access.

• Advanced analytics and reporting: Fair and strategic pay decisions require solid data. The best tools offer dashboards and reports that help HR teams analyse pay equity, track budgets, and ensure compensation decisions are justifiable and fair.

• Strong integrations with other HR software: Compensation management software should simplify workflows, not complicate them. That’s why top solutions integrate seamlessly with HRIS, performance management, and payroll systems—ensuring all your HR tools work together smoothly.

• Pay equity analysis: Fair pay is essential if you want to attract and retain top talent — not to mention staying compliant with the law. The best software includes built-in pay equity analysis, helping organisations identify disparities, correct imbalances, and set measurable goals to improve pay fairness.

• Integrated performance data: In many organisations, performance is directly linked to pay. That’s why top compensation platforms integrate performance metrics alongside salary benchmarks, inflation data, and internal policies—helping companies make well-rounded, data-backed decisions about compensation. 

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Top benefits of compensation management software

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Like all HR tools worth having, compensation management software comes at a cost. And it’s important to ensure it will truly bring value to your organisation before investing in a solution. Here are some of the most important benefits of compensation management software to be aware of. 

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Drives pay equity 

When pay isn’t backed up by a coherent structure, it tends to be overly influenced by factors like personal biases, negotiation skills or past salaries — which can lead to unfair discrepancies.

Compensation management software enables employers to make data-driven pay decisions based only on relevant information like each employee’s role, level, location and performance. As mentioned above, it can also help identify pay gaps and inconsistencies, making it easier to correct disparities and improve pay equity.

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Enables pay transparency

Compensation management software can also help employers meet the demands of new pay transparency legislation. For example, the EU Pay Transparency Directive will require regular gender pay gap reporting from companies above a certain size. 

Compensation management software simplifies compliance by maintaining a clear, audit-ready record of every pay decision and the rationale behind it. Beyond this, compensation management software also supports the growing employee demand for transparency, giving managers the data they need to explain pay decisions with confidence. 

Ensures competitive compensation 

Today’s employees are increasingly aware of their value — and the EU Pay Transparency Directive will make it even easier to compare pay across companies. 

To attract and retain top talent, employers must make sure their salaries are both fair and competitive. Using compensation management software with integrated accurate benchmarking data is the only way to stay aligned with market rates — and avoid losing employees to better-paying competitors. 

Supports budget planning 

Labour costs are among the biggest expenses for any business. And balancing effective compensation with financial sustainability is crucial. 

Compensation management software helps HR teams model different pay scenarios and assess their impact on future budgets. Platforms like Figures also provide real-time analytics on budget usage before, during and after compensation reviews to help you stay on track. 

Saves time and resources 

Managing compensation manually is both time-consuming and resource-intensive. One of the most important benefits of compensation management software is its ability to automate and streamline key processes, freeing up valuable time for HR teams to focus on more strategic initiatives.  

And it’s not just HR that benefits: compensation management software can also save time for managers and other stakeholders in the compensation review process. Tools like Figures include automated workflows that notify the right people at the right time when their input is needed, improving efficiency by reducing the need for manual follow-up. 

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Alternatives to compensation management software

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So, is compensation management software a must in 2025? Not necessarily. Some companies still manage compensation without a dedicated software solution. However, this often means relying on a variety of different tools, none of which are really designed for this purpose — which isn’t ideal. If you’re considering other options, here’s a look at some alternatives and their limitations. 

Spreadsheets

The traditional tool for managing compensation? The good old-fashioned Excel spreadsheet. And we’re not here to hate on Excel — as compensation and benefits professionals, we’ve all done our time in the cells. 

But let’s be honest: this software is clunky, outdated and just not suitable for managing compensation at scale. If you’re interested, we go into way more detail on the many faults of Excel for compensation in this article. But honestly, if you’ve ever tried to run an organisation-wide compensation review on an Excel spreadsheet, you’ll know why it’s far from the ideal platform to manage compensation.   

HRIS platforms 

These days, many HRIS platforms come with optional add-ons for managing compensation. But can this really replace a dedicated, all-in-one compensation tool? In a word, no: these tools typically lack the depth and flexibility needed for effective compensation planning, analysis, and reporting. In our view, HRIS platforms are great for managing core HR functions, but when it comes to compensation, a purpose-built tool is the better choice. 

Performance management software

Similarly, some performance management tools have also introduced compensation modules to complement their core features. However, like HRIS platforms, these tools are just not designed to manage the many nuances and particularities of compensation. While they may be effective at bridging the gap between performance and compensation, they typically lack integrated market data, advanced analytics and the ability to identify pay gaps, making them a limited alternative. 

Pay review websites and salary surveys 

Salary benchmarking is a crucial part of compensation management, which allows employers to ensure their compensation is fair and competitive. If you don’t use a compensation management platform with built-in benchmarking data, you basically have two options: 

• Option #1: User-generated data from sites like Glassdoor and Indeed: This data is unverified and lacks the specificity needed for accurate comparisons. 
• Option #2: Salary survey reports from firms like Mercer or Radford: These are expensive, cumbersome and geared towards large enterprises.

Clearly, neither of these is ideal, especially for smaller businesses. Much better to opt for a compensation management platform (like Figures) with built-in market data for easy, accurate benchmarking.  

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The compensation tool for effective, compliant compensation 

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Figures is an all-in-one tool for effective compensation management. It comes with a suite of useful functions, rolled together in one convenient platform. 

Using Figures, you can: 

• Benchmark salaries against a real-time database of accurate market data
• Create salary bands for your entire organisation in minutes 
• Run seamless compensation reviews without the Excel-induced headache

Want to learn more about what Figures could do for your business? Book your free demo to see it in action. 

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