What Is Compensation Planning?

Compensation planning is the process of designing, implementing, and managing an organization’s compensation program—including salaries, bonuses, benefits, and other forms of rewards—to support that company’s business strategy and workforce needs.

What does the compensation planning process involve?

There are a number of steps in the compensation planning process, all of which are ongoing requirements. Compensation planning isn’t an event—it’s a process that involves job analysis and evaluation, market research, benefit planning and design, budgeting, administration, and communication. 

Through this process organizations can both help to ensure that their pay practices are equitable and competitive, and identify any potential areas where there may be pay inequities or gaps, either internally or externally. 

Why is compensation planning important for organizations?

Effective compensation planning plays a critical role in organizations, ensuring that they compensate their employees fairly, equitably—and competitively. Without effective compensation management and planning, companies may experience low employee satisfaction, increased turnover, and challenges attracting and retaining staff. 

Compensation planning can also help to identify compensation disparities within an organization. For example, pay discrepancies may exist between longer-term employees and new hires being brought into the organization—or between male and female employees, or people of color. These discrepancies can lead to dissatisfaction and turnover, or even regulatory and legal risks. 

How can technology be used in compensation planning?

The use of technology in compensation planning can offer a number of benefits, from the ability to gather and analyze data, to evidence-based insights to help make better compensation decisions. 

Technology can also be used to do scenario modeling to assess the potential impact of various compensation practices. Organizations can also use technology to automate elements of their compensation planning and administration process, allowing HR and compensation leaders to focus on more strategic contributions.

Read more on compensation planning:     

• Compensation Planning: What It Is and Why You Need It 

• Compensation Management: What It Is, and Why It’s Important

• Compensation Management: How to Solve Key Compensation Challenges