What is Compensation Management? Definition and Goals

Compensation Management Process


Forward-thinking enterprises are leveraging the compensation management process to improve employee satisfaction and engagement. In this blog, we look at the definition of compensation management and its goals.

In the current business environment, it’s more important than ever for enterprise organizations to adopt a compensation management strategy. The Great Resignation is in full swing, with over 4 million American workers leaving their jobs in April 2022. One of the biggest factors is low pay. So, what can companies do to help ensure workers stay?

The answer is compensation management.

What is Compensation Management?

Compensation management is the process of how a company rewards its employees for their talent and time. When implemented effectively, compensation management can help to reduce turnover, boost employee engagement and attract top talent.

With so many requirements to satisfy throughout the compensation management process, it’s easy to lose sight of the true purpose of compensation. Yet, being that it’s the very thing that keeps your company going, it’s important to bear in mind the overarching goals behind this aspect of business. While compensation management may feel like it’s all about crunching numbers, referring back to these key drivers of overall business success will help you remember the big picture through every step of the cycle.

5 Goals for the Compensation Management Process

1. Attract Talent

With today’s low unemployment rate, employees have the luxury to be choosy about their career options. Companies must be competitive to win the talent wars, especially when it comes to hard-to-find or high-value workers whose roles are critical to business success. While a compelling employee value proposition can encompass many elements including a rewarding company culture, competitive pay is certainly one important piece of the puzzle for attracting talent.

2. Motivate Employees

Compensation can be used to motivate, especially in employees who are driven by the prospect of achieving financial rewards for meeting goals. Yet, there’s one key element you need for this to work successfully: strong management. Make sure managers are trained to have performance check-ins with their direct reports, during which they can review progress towards goals and ensure employees have a clear line of sight into the rewards for which they’re eligible and how to get there.

3. Increase Loyalty

Employees are now leaving their jobs voluntarily at the fastest rate in nearly a decade, and the jump is usually spurred by a desire to find better pay elsewhere. Obviously, your level of competitiveness will depend on a few key factors, including your company’s geographical region, growth phase, and financial stability. For in-demand talent and top contributors, however, it may be worthwhile to consider how you can incentivize loyalty through compensation.

4. Improve Performance

Compensation and job performance have a complex relationship: both depend on each other, but it’s difficult to pinpoint the specific mechanics of how they work together. While higher pay doesn’t always lead to better performance, it’s undeniable that low pay can be a demotivator. Linking pay to performance is a good way to ensure employees feel they’re being paid fairly for their contributions.

5. Create Job Satisfaction

Compensation is the second most important driver of job satisfaction, coming in just behind the respectful treatment of employees. Remember, however, that compensation encompasses far more than base salary alone. Elements such as benefits and company culture can make significant improvements in job satisfaction, too.


Compensation management is the payment provided to employees for their work. When leveraged properly, it can attract talent, motivate employees, increase loyalty, improve performance and create job satisfaction.

HRSoft is the trusted global leader in compensation management software. Their COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement.