Discussions about compensation arise in a variety of different situations in the workplace. Human Resources leaders and managers discuss pay as they bring on new employees. An organization’s executive team might investigate whether compensation rates and benefits packages are in line with the market if employees start leaving for jobs elsewhere. And, as companies shift gears and develop new products that, for example, require them to hire the best and brightest software developers, they’ll likely need to adjust their pay rates to ensure they’re attracting the top talent they require.

Compensation managers are often involved in all of these conversations, analyzing compensation data and market trends and guiding HR teams and company leaders as they make strategic decisions about employee recruitment and retention and business growth. In this installment of our Careers Spotlight series, we’ll take you through what a compensation manager is, what they do, and how to get started in this career that plays a key role across entire organizations. 

What Is a Compensation Manager? 

Typically a part of Human Resources departments, compensation managers ensure that executive teams, HR leaders, and managers have all the information they need to make informed decisions about an organization’s pay policies and benefit programs. “They are responsible for carrying out and implementing the overall strategy for compensation programs,” explained Elliot N. Dinkin, President and CEO of consulting and actuarial firm Cowden Associates

Job Responsibilities of a Compensation Manager

Depending on the size and complexity of the company, a compensation manager’s role can vary. In smaller companies, they may focus primarily on payroll, said Tim Toterhi, founder of Plotline Leadership, an HR consulting and coaching firm. In larger companies, they will likely be involved in more strategic decisions.

According to Toterhi and Annette Harris, Associate Human Resources Director for consumer goods company Swisher and owner of Harris Financial Coaching where she advises clients on salary negotiation among other financial topics, traditional job responsibilities for compensation managers include: 

  • Researching and setting pay scales, which define the minimum, midpoint, and maximum salary for different job titles.
  • Establishing pay structure and compensation programs, which provide blueprints for how employees are compensated across an organization.
  • Overseeing the operational processes to determine annual merit raises, bonuses, and promotions.
  • Evaluating whether cost-of-living adjustments — across-the-board boosts in pay to address inflation — are required.
  • Supporting the development of job descriptions and proposing fair and competitive compensation for positions based on their duties and responsibilities, the level of education required, and the market rate for the job, among other factors.
  • Providing the relevant financial data as organizations pull together benefits packages, including retirement plans and health insurance.
  • Staying abreast of local, state, and federal employment laws that relate to compensation, including emerging laws that cover pay equity and ban employers from asking job candidates about their salary history.

Indeed, in recent years, compensation managers’ focus has turned, more often, to fair pay practices, Toterhi said. They may be involved, for example, in helping to conduct a pay equity audit, or PEA, which can reveal internal equity issues. And, they may need to push back on HR business partners or managers who might be steering an organization toward potential legal claims, noted Toterhi. “This can mean either calling out incongruent practices or highlighting excellence to diffuse popular misperceptions,” he said.

Median Salary for a Compensation Manager

The median annual salary for compensation managers hovered around $125,000 in May 2020, according to the US Bureau of Labor Statistics (BLS). The lowest 10% in the field earned about $70,000 or less, according to the BLS. The highest 10% took home more than $208,000. The federal agency expects the number of compensation managers to grow by 4% between 2020 and 2030.

“Good talent is needed in this area, and you’re going to become a vital partner and understand all parts of HR, including recruiting, retaining, and pay,” Dinkin said. “It’s a very good path if you want to be in HR.” 

Skills a Compensation Manager Needs

Compensation managers must not only be good at crunching numbers and analyzing data, they should also be able to explain complex information to people who might not know the difference between a compa-ratio, a target percentile, and other compensation metrics. Compensation managers need to bring these three skills to the table:

1. Math Skills

Compensation managers must be very comfortable with numbers — they’ll be analyzing data about an organization’s compensation and benefits package, market rates, and the needs of the business going forward so they can make informed recommendations to managers, HR leaders, and C-suite executives. “There’s going to be a lot of number crunching, spreadsheets, and decision-making,” said Matthew Burr, MBA, SPHR, SHRM-SCP, founder of HR consulting firm Burr Consulting. “Sometimes you might need some actuarial skills as well, [for] looking at surveys and benchmarking,” he noted. 

2. Analytical Skills 

But crunching numbers isn’t enough; compensation managers must also be able to analyze the data based on a company’s specific needs. Salary levels and pay bands, for example, will vary across a company, depending on its goals or mission. Those software developers working on the next big launch might need to be paid at a higher level because of their vital role in the company’s growth plan. Compensation managers need to understand the role of different departments and job titles across a company and include those variations in their calculations. “You need to understand marketing, you need to understand IT, you need to understand the administrative jobs, because all of those pay bands are so different,” Harris said.

3. Communication Skills 

Once they’ve done the math and analyzed the numbers, compensation managers must be able to communicate that data effectively to company leaders and the executive team. “A lot of people don’t understand data or can’t interpret it,” said Harris. “So the ability to communicate in layman’s terms what your analysis has come up with — why you came up with the pay band for that job description you created — [is important].”

How to Become a Compensation Manager

A master’s degree isn’t required to become a compensation manager, but a bachelor’s degree in business administration, finance, or accounting can be helpful, said Harris. So could a degree in HR that includes some classes on compensation. At the same time, someone with the right skills could move into the role even without a four-year college degree. At least five years of experience working within an HR department on recruitment, including evaluating the salaries and benefits for new hires, could prepare somebody for the career path, she said.

Certifications also can help. Certification programs for compensation managers include: 

—— 

Compensation is a niche career path within Human Resources management that requires some specialized knowledge, including math and analytical skills, Burr said. But for people with the right expertise and interests, there is plenty of opportunity.

“If you’re good at compensation, the sky’s the limit,” Burr said. “You’ve got a [great] opportunity to do some good things in your career.”