5 Ways Compensation Management Solutions Help You Mitigate Risk

March 2, 2023
November 7, 2023
Jennifer Ernst Beaudry
Lattice Team

When it comes to compensation, companies that are serious about their growth plans have a lot of questions to answer. Are they paying attractive, market-rate salaries that will attract new talent and retain top performers? Is their overall compensation benchmarked against the competition? Is it aligned to support internal priorities? Are salaries reflective of the company’s commitment to diversity, equity, inclusion, and belonging (DEIB)? But for many firms, there’s another question to ask: Do we have the appropriate compensation management software for our needs?


Key Takeaways

  • Losing compensation data carries serious legal risk.
  • Spreadsheets are insecure and can be easily shared.
  • Compensation software can curb runaway costs.
  • Benchmarking keeps you competitive without overpaying.
  • Manually maintaining files poses audit risks.

Purpose of Compensation Management Software

While maintaining a decentralized series of spreadsheets or documents to track pay and compensation may be the norm for many smaller businesses, it’s a practice that can expose your company to considerable risk. When you find and implement the right compensation management software for your business, you can mitigate risk across various areas: security, compliance, talent management, and budgeting, among others. By protecting your data, your budget, and your talent, the right software can set your firm up for success. 

Here, experts explain exactly how the right compensation management solution can safeguard your business — and break down why you need to leave compensation spreadsheets in the past.

Ways Compensation Management Solutions Can Mitigate Risk 

Compensation management programs offer a number of advantages over spreadsheets; they’re richer in features, more secure, and easier to deploy across an entire organization. But even more so, keeping wage and compensation data in a centralized software makes doing business easier, whether it’s complying with applicable regulations, keeping an eye on the budget, or creating visualizations for forecasting. 

There is no truly secure [spreadsheet] for storing sensitive data such as pay information.

1. Enhanced Data Security 

Keeping sensitive compensation details in unsecured spreadsheets is a major security risk. “There is no truly secure [spreadsheet] for storing sensitive data such as pay information; keeping it on paper or in an easily accessible file on a computer is a recipe for disaster,” said Linda Shaffer, chief people and operations officer for Checkr, an HR background check company.

The information about your employees’ compensation packages is some of the most sensitive data an HR department tracks, so keeping it safe, secure, and accurate needs to be of paramount importance. Most spreadsheet programs have only rudimentary protections to prevent unauthorized access or tampering. 

Spreadsheets are generally easy to download, duplicate, and delete or overwrite, accidentally or purposefully. Not only does that mean critical data about salaries and bonuses can be viewed or shared by parties who shouldn’t have access — without any stakeholders being aware — but it also means information crucial to the company can be lost or deleted. It’s more than a headache: Losing sensitive data can wreak havoc with record-keeping and can open the firm up to legal jeopardy if necessary documentation is lost.

The flip side is also true. Moving away from spreadsheets to a centralized software solution often means enhanced access to necessary and current information for relevant parties, Shaffer said. “Systems are often cloud-based, providing secure storage for sensitive information with the added benefit of access from anywhere with an internet connection,” she explained.

2. Improved Accuracy and Accountability

When it comes to compensation, it’s essential that the information the company keeps on file is both accurate and up-to-date. Your employees depend on their paychecks being accurate, and the company’s cash flow is predicated on the timely and correct payment of salaries and bonuses. 

In spreadsheets, it’s far too easy for even the well-intentioned HR professional to accidentally overwrite a number, paste a value in the wrong cell, or make another mistake that can have serious ramifications. 

“Automated processes make data entry and calculations more accurate and reduce the risk of human error,” Shaffer said.

Spreadsheet errors can lead to a multitude of problems, including incorrect salary history and mistakes in the way bonuses are paid. If those errors lead to underpaying employees, then companies need to make good on those payments, and possibly pay penalties on top. If mistakes lead to overpaying workers, then companies need to claw back money paid out incorrectly, which can be a logistical challenge. In all scenarios, the company can risk losing the trust of staff or even being subject to penalties. 

Working in a spreadsheet can also make the chain of custody for information less clear. As Sheila Stafford, CEO of text-based digital platform for hourly workers TeamSense, said, “It's difficult to discern who modified a cell in a spreadsheet. Due to this, it could be challenging to identify who should be held responsible in the event of an error or other problem with the document.”

A compensation dashboard from Lattice showcasing merit increase guidance.
Merit cycles shouldn't put your business health in jeopardy. Lattice makes it easy to provide merit raise guidance while keeping everyone on a budget.

3. Streamlined Regulatory Compliance

Every company, no matter the field, is subject to industry and governmental legal requirements, including the ones that cover employee pay and benefits. Maintaining compliance with those regulations and requests means having the documentation required — and having it exactly when needed. And that’s where compensation tracking solutions shine. 

Spreadsheets “lack the security and audit capabilities necessary for companies to ensure sensitive corporate information is adequately protected. Additionally, manually maintaining records can be time-consuming and labor-intensive, leading to inaccuracies due to human error,” said Bryan Driscoll, a lawyer and HR consultant with SimplifyLLC and Bryan J Driscoll JD LLC.

With customizable reports and analytics...businesses can quickly gain insights into overall compensation trends.

Compensation management software programs can track salary and bonus payments and employee compensation history. They also generally have reporting capabilities built in, which not only makes it easier to provide documentation on request, but can also alert HR, legal, and management to potential pay disparities, helping to “mitigate legal risks and provide transparency to stakeholders,” as Tara Furiani, CEO of consulting firm and weekly web series and podcast Not the HR Lady, put it. 

Many programs can even take it a step further, becoming active tools that can help head off potential issues. As an example, robust management programs can “alert business leaders to pay discrepancies, which could result in legal troubles if not rectified,” Driscoll said. “With customizable reports and analytics dashboards available at their fingertips, businesses can quickly gain insights into overall compensation trends within their organization.”

4. More Comprehensive Budgeting

Deploying a compensation management software program can pay off when it comes to setting and maintaining corporate budgets, and making both big-picture and individual compensation decisions, experts said. 

Spreadsheets, Driscoll explained, “may not be capable of handling complex compensation structures with multiple criteria, such as bonuses and overtime pay. Using a more robust compensation management software program can help mitigate risks by enabling companies to securely store data and automate calculations based on important variables such as job titles, location, cost of living indexes, and more.”

A software system can help HR professionals create visualizations to better see patterns in their pay programs, as well as complete necessary forecasting and benchmarking work. This software can also serve as a useful hedge against arbitrarily assigned merit increases, which can be problematic in several ways — with increased spending that can balloon budgets, and through unequal or inequitably distributed rewards that can tank morale and sabotage DEIB work.

“Utilizing data-driven analytics, [management software] can provide visibility into how much is being spent on wages and other forms of compensation, allowing organizations to make informed decisions about their overall spend on human capital,” Shaffer said. “This can help them better manage costs and remain competitive in their respective industries.”

5. More Comprehensive Compensation Data 

Firms that have invested in compensation benchmarking know how critical setting and maintaining appropriate pay programs and compensation strategies for total rewards are for employee retention. For those companies, a compensation management program can help support and advance their benchmarking efforts.

The additional features software solutions offer, like comparison tools, “allow organizations to make data-driven decisions when setting compensation levels,” Furiani agreed. This can apply to adjusting or creating salary bands and setting ranges for established positions, as well as setting merit increases and negotiating offers. 

The end result is more visibility into current market trends, and it can be a powerful recruitment and retention tool. It can even make for improved employee morale. “By bringing greater visibility into their total rewards strategy, companies can make informed decisions that lead to improved employee satisfaction while reducing costs associated with overpayment or underpayment risks associated with manual spreadsheet processes,” Driscoll said.

What Makes Compensation Management Software the Right Choice

Compensation is important to your employees — and to your bottom line. For firms trying to take their growth to the next level, collecting insights on total rewards and pay packages is an essential step in being a desired, competitive player when it comes to recruiting new all-stars and retaining top talent. And with labor by far the biggest line item on most corporate budgets, smart employers want to know where they’re investing. Being able to both find and track up-to-date information about pay packages, benefits, long-term incentives, and more is essential for firms looking to flourish in a challenging environment.

That’s what makes the choice of tracking software so important. There are plenty of pitfalls for firms trying to navigate the new labor market already — adding in insecure, error-prone, and often complicated-to-use spreadsheets is just one. But for security, budgetary, and legal reasons, finding the right software management system is the best fuel you can give your company for the long haul. 

“A robust compensation management software program can help organizations mitigate risks associated with compensation management,” Furiani said. “This technology can help to minimize errors and ensure compliance, protecting both the organization's financial stability and reputation.”

Learn more about Lattice Compensation or watch a preview of the solution below.

Key Takeaways

  • Losing compensation data carries serious legal risk.
  • Spreadsheets are insecure and can be easily shared.
  • Compensation software can curb runaway costs.
  • Benchmarking keeps you competitive without overpaying.
  • Manually maintaining files poses audit risks.