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

Key takeaways:

• Manual compensation management leads to pay inequity, compliance risks, and talent loss.
• Compensation software centralises data, automates processes, and ensures fair, competitive pay.
• Reduce annual merit cycles from weeks to days with automated workflows.
• Real-time market data, salary band creation, pay equity analysis, and HRIS integration are must-have features.

Ever tried to guess your market pay rates using a crystal ball or last year’s spreadsheet? Spoiler alert: neither one is very accurate.

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 But many companies rely on ineffective, outdated ways of managing compensation – which means they have little to no idea if their salaries are really competitive.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.

What is compensation management software?

Think of compensation management software as your GPS for pay decisions. Just like you wouldn't navigate a cross-country road trip with a paper map from the 90s, you shouldn't navigate compensation with outdated spreadsheets and gut feelings.

Compensation management software 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. The software acts as a single source of truth for all compensation data.

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.

How compensation management software works

Compensation management software works by streamlining pay decisions, reducing errors, and saving time for HR teams. Here’s how:

• Data centralisation ensures all employee pay data is in one platform – because nothing says “professional HR team” like having to ask three people which spreadsheet version is actually current.
• Automated planning applies compensation rules automatically, saving HR teams from manual adjustments and ensuring consistent pay decisions.
• Budget alignment lets HR teams set budgets directly in the platform, keeping compensation within financial limits and aligning pay with business goals.
• Performance integration links performance data directly to pay decisions, ensuring top performers are rewarded appropriately based on clear outcomes.
• Benchmarking compares internal pay to market rates, helping ensure compensation is competitive and aligned with industry standards.
• Modelling allows HR teams to preview compensation changes through different scenarios, enabling informed decision-making before implementation.
• Analytics tracks compensation trends in real time, providing insights to help HR stay ahead of industry changes and adjust strategies as needed.
• Integration connects to Human Resources Information Systems, or HRIS, and payroll systems, streamlining processes and eliminating errors from manual data entry.
• Compliance monitors regulatory changes continuously, ensuring compensation practices stay up to date and avoiding compliance risks.

Platforms like Figures complete this workflow in minutes, not weeks, freeing up time for more important tasks. With 3.5 million data points powered by Mercer, you’re working with the most comprehensive market data available.

Streamlining annual merit cycles

When using compensation management software, annual merit increases are done in days instead of weeks, saving time and reducing administrative burdens. The software sets eligibility rules automatically, ensuring that only eligible employees are considered for increases without any manual oversight.

Managers receive pre-calculated increase recommendations, making the process smoother and helping to eliminate any guesswork or inconsistencies in decisions. Budget pools distribute across departments instantly, allowing for faster, more efficient allocation without delays.

Here’s what Agnès Chauvigny, VP of People at Figures, has to say:

"Our customers used to deal with the horrors of month-long merit cycles. Now they wrap up the entire process in days instead of weeks. Turns out, automation beats VLOOKUP formulas every time."

Key features of the best compensation management software

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. It generates bands automatically by combining market data with your internal framework and budget parameters.

• 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. Benchmarking compares roles against filtered market data, with filters including industry, location, and company size, while data updates monthly from verified sources.
• 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. Its permission system allows administrators to set viewing rights by department, role level, or specific data types through simple toggle controls.
• 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. Dashboards update automatically when new data enters the system, with reports including pay equity analysis, budget variance, market positioning, and merit modelling.
• Strong integrations with other HR software: Compensation management software should simplify workflows, not complicate them. That's why top solutions integrate well with HRIS, performance management, and payroll systems – ensuring all your HR tools work together smoothly. Figures connects with 40+ HR tools and syncs data in real-time to ensure compensation decisions reflect the most current employee information.
• 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. Figures highlights pay gaps that exceed regulatory thresholds and provides guided remediation steps to address identified disparities.

• 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. Performance ratings automatically feed into merit increase calculations, allowing managers to see recommended salary adjustments based on both market data and individual performance scores.

Top benefits of compensation management software

Here's what breaks for HR teams without proper compensation software: Manual spreadsheets create version control chaos, with different stakeholders working from outdated pay data. Pay gaps remain hidden until audits expose them – usually right after someone asks the awkward question, “So why does Sarah make 15% more than me for doing the same job?”

Market data becomes obsolete before reviews finish, leaving companies vulnerable to talent flight. HR teams waste weeks on manual compensation reviews that could be completed in days with the right tools.

The right compensation management software:

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.

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. In fact, HR teams save a staggering eight hours a week by automating processes.

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.

Alternatives to compensation management software

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 – you might as well use a typewriter. 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.

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. Plus, there's nothing quite like the panic of realising you've been working in Comp_Review_DRAFT while your colleague has been updating Comp_Review_FINAL_USE_THIS_ONE_JAMES for the past two hours.

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. It’s much better to opt for a compensation management platform (like Figures) with built-in market data for easy, accurate benchmarking.

The compensation tool for effective, compliant compensation

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 the platform, 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

What used to take HR teams weeks of manual work now happens in days with automated workflows. With comprehensive coverage across Europe – including France, the UK, and Germany – it provides real-time market insights that stay current throughout the year, unlike traditional annual salary surveys that become outdated within months.

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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