Compensation tools is a label covering four distinct products that are rarely distinguished when people go looking: planning, benchmarking, analysis and communication. They are bought in a fairly predictable order, and buying them out of order is the commonest way to end up with software that nobody opens after the first quarter.
Planning, which is usually bought first
The annual review tool: budgets, worksheets, guidelines and approvals. It is bought first because the pain is immediate and obvious, namely a spreadsheet with everybody's salary in it moving around by email. The value arrives in the first cycle and is easy to demonstrate afterwards, which makes it the safest of the four purchases.
Benchmarking and analysis, which come next
Benchmarking answers what the market pays; analysis answers what your own structure looks like. Both depend on a job architecture that many organisations have not built, which is why they are frequently bought too early and abandoned. If job titles are inconsistent and there are no levels, fix that before buying either.
Communication, which is neglected and cheap
Total reward statements and a way for an employee to see their own position and what it means. This is the smallest of the four and often the one with the best return, because a large part of dissatisfaction with pay is people not knowing what they have or how it was decided. Many planning tools include it and few organisations switch it on.
Questions people ask about compensation tools
Which compensation tool should we buy first?
Planning, in almost every case. It solves a concrete problem in one cycle and requires less preparation than the data driven tools.
Can the HR system do all of this?
Suites cover planning well and are usually thinner on benchmarking and analysis. Test with your own job structure rather than a demonstration data set.
Do we need a reward specialist to use these?
For planning, no. For analysis and benchmarking, somebody has to own the job architecture, and without that person the tools produce confident nonsense.