Skip to content

The Opportunity Cost of Inefficient Compensation Management

In my role as a Business Developer for beqom, I have spoken with hundreds of practitioners in the Compensation and Benefits (C&B) space in HR and Sales at large organizations about their challenges in managing compensation. While every company has its unique challenges, three recurring themes emerge in these conversations. Not solving these challenges can be surprisingly costly.

The 3 challenges that large organizations face with compensation

One frequent challenge reported by C&B practitioners is a lack of automation of the calculations in the different processes (salary reviews, bonus plans, long-term incentives, sales commissions, etc.). This results in a lot of manual effort and the risk of errors and often means that compensation plans cannot support much sophistication. Related to this is the lack of automation of the processes themselves, with no automated workflow and approval process.

Another problem I am hearing more and more is that the company just invested in an HR Suite and uses its compensation module but it is less than satisfactory. It may not handle their complex organizational structure, for example, or their multitude of bonus plans, or their complex calculations involving many different KPIs.

Thirdly, practitioners often complain there is a lack of transparency regarding compensation information that is available to employees and other stakeholders. This makes it harder for managers to manage pay for their teams, leaves employees in the dark regarding their total compensation and how it was calculated, and results in lost productivity as sales reps and other employees try to understand their variable compensation. And, it results in lots of extra work for compensation administrators to produce employee statements and management reports. Finally, it can make audit and compliance a nightmare.

There’s an alternative to handle these challenges

Sometimes the company just takes these challenges for granted and is not aware that there might be an alternative solution out there that can handle the complexities of their processes.

So, often the presentations that we at beqom give to potential clients are educational and full of “aha” moments. They are excited to realize that there’s a system that can complement their HR Suites by managing their compensation efficiently and without compromise.

Yet, even though they may see that the beqom solution can handle their complexities, and save them time and money, they sometimes make the choice to settle for the HR suite or a homegrown system they already have to handle their compensation management. Perhaps they have no more systems budget for the year, or just don’t want to take on another project. So they try to build workarounds to handle what beqom can do naturally. Yet that approach comes with its own very significant costs, both direct and hidden.

Building workarounds is costly

By building workarounds or manual processes, these organizations end up with very complex systems that only a handful of their employees can manage, and that are difficult and costly to change. These systems compromise efficiency, data integrity, security, and the company’s ability to adapt compensation strategy to changing needs.

Not moving forward and investing in an efficient compensation system can be very costly to large, complex companies. Yes, by choosing not to implement a solution, the company saves money in the short term. But the cost in the long run is far greater. The time spent doing tedious manual work is costly. The compensation and benefits team spends too much time on work that can be automated while lacking the bandwidth to do value-added strategic tasks to drive the behavior of the employees in the company at large.

beqom clients have demonstrated the ROI in HR compensation and ROI in Sales compensation, with 6x faster salary review process, 1000s of hours saved in employee effort, 98% reduction of IT costs, 65% decrease in the need for HR support, and overpayments reduced to zero. In fact, a leading technology school recently developed a tool to calculate the ROI of digital compensation management

Manual processes can cause low employee retention rates

Among all my conversations with clients or potential clients, the most memorable conversation I had was with a large consulting firm that had a mainstream HR Suite for years and had to compensate for its shortcomings with a huge number of Excel spreadsheets. The Head of Compensation & Benefits ignored this issue for years—and that started building major dissatisfaction within his compensation team. This dissatisfaction arose because the annual salary review and bonus processes were tedious, manual, and extremely long and grueling.

After a while, he realized that the turnover rate in his compensation team was abnormally high:  managers stayed for a year on average before leaving the company. Three months ago, he actually ended up with no compensation administrators at all because they all left and he had to start an urgent, and very costly, hiring process.  

That’s an example of attrition in HR due to inefficient processes, but those same processes make life difficult for managers and employees as well, often causing endless frustration and impacting performance and employee satisfaction.

The costs of not investing in a dedicated compensation system

So apart from the obvious costs that we can quantify from having an inefficient system, the hidden costs can be :

  • A high turnover rate of your compensation team
  • A low retention rate of your employees in general
  • Hidden payment errors
  • Loss of HR efficiency
  • Loss of manager efficiency
  • Reduced employee and sales rep performance
  • Increased IT and system costs
  • Audit and compliance risks

Compensation is arguably the most critical system in a company, as it is both a major cost and an important driver for recruitment, retention, and performance. Yes, investing in a new compensation solution after investing in an HR suite may seem like extra expenditure and effort, but failing to attend to the proverbial elephant in the room after realizing that these systems won’t meet your core needs can be very painful — and costly — in the long run.

To learn more about how to empower your business with automated compensation management, download our free eGuide, 8 Signs Your Compensation System is Holding Your Business Back.

New call-to-action


Blog feed

Using pay equity strategically

Are You Using Pay Equity Strategically?

Bring Out Greatness in the Year End Review

The 3 Pillars of a High-Performance Culture

5 Ways to Get ROI by Streamlining Compensation & Performance Processes

A Nobel Prize and a Path to Pay Equity