How to Be More Efficient With Your Compensation Spend

How to Be More Efficient With Your Compensation Spend

Did you know compensation spend is the largest business expense in 2021?

Paycor’s recent State of American Business Survey shows that employee compensation spend takes up nearly 70 percent of total business costs. Here, compensation spend covers something much more than merely monthly wages of employees. It is an overarching umbrella that covers everything from employee wages and total rewards to taxes and other value-added benefits that businesses offer their employees.

Despite being the largest expense of any business in the world, compensation spend seems to be the least managed or analysed expense due to its seemingly invisible nature. As a result, businesses ignore the hidden costs that lurk in compensation spend. However, increased cost to business is the least of the worries.

For, failure to analyse your compensation spend will bring about inability to link compensation with performance leading to pay disparity and ending with employee dissatisfaction at the lack of transparency in employee compensation and rewards process.

If all these instances strike fear in your heart, here are three invaluable tips for you to track, manage, and increase the efficiency of your compensation spend.

1. Know your compensation spend

The first step towards streamlining your compensation process is getting an accurate picture of your labor costs. Understanding how much you spend on your employees will help businesses identify employee compensation trends and pinpoint issues caused by mismanaged compensation spend.

After making note of all your direct and indirect compensation spend, you can ask yourselves these questions to dig in deeper and draw meaningful insights:

  1. How competitive is your organization’s compensation spend?
  2. Are there instances of underutilization or overspend on labor?
  3. How do you equate compensation with employee performance?
  4. Does your existing compensation spend strategy ensure pay equity?
  5. How does your compensation relate to overall rewards spend?
  6. Are your employees happy and satisfied with the existing process?
  7. How transparent is your compensation strategy?

2. Centralize your compensation spend data

Although centralizing your compensation spend may have its fair set of roadblocks, centralizing the data in a repository will ease the process of compensation audits. Automating the data collection process will ensure while sensitive compensation spend data is available for analysis, it isn’t visible to unauthorized people.

Proper use of compensation spend automation will not only provide a unified view of compensation spend but also ensure accuracy and eliminate any chances of costly errors. What’s more, availability of compensation data across the business will enable functional and HR managers to make informed decisions that are backed by data.

3. Put Your Data to Work

By feeding your compensation spend data into an analytics interface, you can unveil insights that show whether or not your compensation strategy is fulfilling its intended goals. Making a practice of analysing your compensation spend will help you align your spend better with your overarching business goals.

In addition to giving you warning signs, proper analysis of your compensation data can come in handy for determining fair pay, gauging employee satisfaction levels, assessing decision effectiveness, and thus contribute to effectively streamlining your compensation spend once and for all.


If you’re serious about unlocking the efficiency of your compensation spend, you will have to ditch your manual compensation management process and delve deeper into existing compensation-related problems.

Moving away from disconnected compensation spend and overflowing spreadsheets filled with sensitive compensation information will help you battle inefficiencies in your compensation strategy head first. An ideal compensation management tool will provide businesses a clear picture of their current compensation trends and prevent compensation-related risks irrespective of their size or line of business.

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