Originally published May 11, 2023. Updated September 22, 2026.
Sixty-eight percent of executive leaders now see compensation as a strategic lever, according to Payscale’s 2026 Compensation Best Practices Report. Yet only 5% of organizations are making great progress on the quality and trustworthiness of their workforce data, according to Deloitte’s 2026 Global Human Capital Trends.
Financial services firms feel this more than most. One employee’s pay can include base salary, a discretionary bonus, deferred compensation, long-term incentives, and carried interest, often spread across several fund vehicles and currencies. When the process can’t hold that structure, the cost goes beyond admin hours. It shows up as a pay decision someone can’t explain to a participant, a regulator, or a court.
A compensation process is out of control when you can’t produce the reasoning behind a pay decision on demand. Here are five signs to check before year-end, and what to do about each one.
1. Spreadsheets carry the cycle
If closing a comp cycle means reconciling one spreadsheet per region, per fund, or per plan, the spreadsheet is your system of record. Currency conversions get handled by hand. Proration rules live in one analyst’s formulas. A late-quarter change to a bonus pool has to be copied into every file it touches.
The budget leaves little room for those errors. In the same Payscale report, 51% of organizations name balancing pay expectations against financial limits as their top challenge, with a 3.5% median base pay increase planned for 2026. When pools are that tight, a misallocated dollar comes out of someone else’s increase.
Data quality is also where every other sign on this list starts. If the Deloitte finding holds for your firm, more effort won’t fix it, because the data was never in one place to begin with.
Count the files your team opens to close one comp cycle. If the number is higher than the number of business lines, the process is running on workarounds.
2. You can’t prove what an employee was told
At a recent HRSoft roundtable with compensation and finance leaders in alternative asset management, one participant described a multi-million-dollar claim. The employee argued they had never been properly told how their equity worked. The firm won on documentation: proof the employee had seen and acknowledged the disclosures, more than once.
Few CFOs forecast an equity dispute until one arrives. By then, the evidence either exists or it doesn’t. Acknowledgments sitting in email threads, approvals given in hallway conversations, and grant terms sent as PDF attachments are hard to reassemble under a deadline.
The fix is simple: capture a digital acknowledgment the first time a participant views a grant, and log every approval as it happens. A decision documented at the time is far easier to defend than one reconstructed after an audit request.
Pick one long-term incentive or carry grant from three years ago. Time how long it takes to show who approved it, what the participant received, and when they acknowledged it.
3. Leveling depends on who argues hardest
At the same roundtable, one business leader wanted their team benchmarked against top hedge funds. Another wanted the same roles compared to passive index managers. Each was arguing for the peer set that favored their own outcome.
Without defined levels, that argument has no referee. Employees turn to self-reported pay data, and managers reach for whichever benchmark helps them most. Firms are responding: Payscale found that 62% of organizations now have a formal job architecture, up year over year, and 60% have pay equity analysis planned or underway.
The pressure is sharpest for firms with European operations. Roundtable participants said Europe’s “work of equal value” standard is already prompting requests to defend pay differences between roles, and firms without documented level differences struggle to answer.
Choose two people in the same role and level with different pay. Can you show the documented reason in under five minutes?
4. Participants see what they’re worth only twice a year
Participants already know what they earn. Increasingly, they want to know what it’s worth right now. One roundtable firm replaced a twice-a-year valuation email with a live portal, and a hedge fund leader said their employees now expect daily valuation. A statement that arrives every six months understates value that’s accruing every day.
Visibility also decides whether an incentive pays for itself. Carry is scarce and expensive, and it was built for investment professionals who understand fund mechanics. Extended to teams without that context, it loses its retention value. As one participant put it about expanding carry beyond the investment team: “Carry means nothing to them.” Firms are responding by matching the instrument to the population, using synthetic carry, profits interests, or RSUs where they fit better.
The research points the same way. In Korn Ferry’s July 2026 Global Rewards Pulse Survey, communications and manager-employee education ranked as the top total rewards redesign priority, at 43%. And employees aren’t waiting: 7 in 10 employers report more workers asking generative AI tools for salary information. If your firm doesn’t explain what a package is worth, a chatbot will.
Ask three participants outside the investment team what their unvested awards are worth today. Compare their answers to your records.
5. AI is in your comp process but not in your governance
Compensation teams are already using AI, mostly on their own. Payscale found that 42% use free or personal licenses of general-purpose AI tools, while only 16% bought a compensation or HR tool primarily for its AI capabilities. Informal use is running well ahead of formal investment.
Practitioners see the risk. In the same survey, 53% named over-reliance on AI, at the expense of human judgment and context, as their top AI concern. Only 21% said they trust AI for compensation decisions solely when it comes from comp-specific tools with disclosed methodologies and controls.
Regulators are paying attention too. The EU AI Act names pay determination as a high-risk employment use, and those obligations became fully enforceable on Aug. 2, 2026, according to DLA Piper’s analysis. Firms with EU employees should confirm their obligations with counsel; this article isn’t legal advice.
At the roundtable, several firms said they’re pausing backfills to see whether AI can absorb a role first. That’s a fast lever on the comp line, but it can leave the firm short of trained people later. One practice worth copying: a monthly one-hour session where five employees, from interns to business unit leaders, each redo a human-completed task with AI and show how they did it.
List every AI tool anyone on your comp team used this quarter. Note which ones touched employee pay data, and who approved that use.
How HRSoft supports financial services firms
HRSoft is the unified, purpose-built platform for the entire compensation lifecycle, from planning and modeling to total rewards communication, with the depth to handle complex pay that generalist HR suites can’t. For financial services firms, that maps directly to the five signs above:
- Spreadsheets carrying the cycle: Total Compensation Management runs salary, bonus allocation, and complex proration rules in one place, with multi-currency support through International Capabilities.
- Missing documentation: Administrative Features include audit trails and notifications, so approvals are recorded as they happen.
- Inconsistent leveling: Planning Tools and Modeling and Calibration apply the same rules and review steps across teams.
- Limited participant visibility: Compensation Statements and Total Rewards Communication give employees a branded view of what their package is worth.
- Ungoverned AI: HRSoft Intelligence assists with modeling and data cleansing, with a person in control of every pay decision.
For alternative asset managers, HRSoft’s Carried Interest tools cover carry point tracking, vesting schedules, forfeiture processing, distribution notices, and carry allocation planning, with a participant portal and document repository. Long-Term Incentive Management handles award agreements and deferred compensation alongside them.
HRSoft helps firms run a documented, consistent compensation process that supports their compliance programs. It doesn’t provide legal or tax advice.
Where to start before your next comp cycle
You don’t need to fix all five signs at once. Start with the one that would hurt most in an audit or a dispute:
- Map your files. List every spreadsheet that feeds a pay decision, and who owns each one.
- Close the acknowledgment gap. Make sure every new grant is acknowledged, and recorded, when the participant first sees it.
- Lock the peer sets. Agree on benchmarks by job family before managers start making the case for their own teams.
- Show participants their value. Replace periodic statements with a view they can check whenever they want.
- Write down your AI rules. Decide which tools can touch pay data, and who signs off on their output.
If you can’t produce the reasoning behind every pay decision your firm made this year, the process is in control of you. Book a demo to see how HRSoft runs the full compensation lifecycle for financial services firms.
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