Market Perspectives

ISG Research is happy to share insights gleaned from our latest Buyers Guide, an assessment of how well software providers’ offerings meet buyers’ requirements. The Compensation Management: ISG Research Buyers Guide is the distillation of a year of market and product research by ISG Research.

The strategic oversight of compensation planning and management processes plays a crucial role in how businesses attract, retain, and motivate talent within a competitive marketplace. Recent trends and innovations have significantly influenced this area, particularly through the adoption of technology and data analytics. As the digital transformation accelerates, enterprises are utilizing advanced software and artificial intelligence-driven tools to streamline compensation processes, enhance wage equity, and personalize employee rewards. Additionally, the rise of remote work and the gig economy has prompted a re-evaluation of compensation strategies to accommodate diverse work arrangements and expectations. This evolution necessitates flexible and inclusive approaches that not only address the changing needs of the workforce but also foster a more engaged and productive workplace culture.

ISG Research defines compensation management as designing, implementing, and overseeing of pay structures and incentivization schemes for employees within an organization. Compensation management practices directly influence employee motivation, retention and recruitment, ensuring the organization can attract and keep top talent in an increasingly competitive and dynamic marketplace. Organizations have long depended on technology to facilitate compensation management processes, evolving from spreadsheets to more sophisticated solutions that provide data-driven decision support with rich analytics and more consumerized user experiences. Enterprises are moving away from traditional methods, focusing instead on continuous compensation management that aligns with real-time market conditions and employee performance.

Employees expect a more personalized experience in the workplace, especially when it comes to compensation and rewards. Total rewards, including compensation, benefits, perks and development opportunities, are competitive differentiators and should be a key part of an organization’s efforts to attract and retain top talent. As the world experiences innovation and rapidly changing conditions, enterprises are feeling increasing pressure to accommodate worker preferences in total compensation, where flexibility and personalization combined with equitable practices are critical. AI and machine learning technologies increasingly make it possible to personalize compensation and rewards in a way that scales. Today’s digital tools for compensation management are innovating rapidly. They don’t just personalize rewards; they also allow enterprises to model funding for compensation pools and structure pay according to their unique needs. These systems can handle a multitude of complex plans and automatically tweak compensation packages whenever an employee’s situation changes. They can also match jobs with market compensation data even when there are no direct comparisons available, helping enterprises understand the costs of making pay adjustments for specific job families or business sectors. This is especially important now that skills-based hiring is gaining traction. Enterprises are looking beyond just job titles to evaluate roles and pay based on the actual skills and competencies required, making it easier to ensure that everyone is compensated fairly, no matter where they fit in the organizational hierarchy.

In the past, compensation management involved issuing a compensation statement annually that outlined base salaries and bonuses. These statements have evolved significantly, to align with the expectations of workers, now showcasing the comprehensive investment an organization makes in each employee. This includes not only benefits—beyond just insurance and retirement plans—but also the value of accrued paid time off, potential variable compensation, incentive payout scenarios, various non-financial rewards and even investment in professional development. What was once a dreaded yearly review cycle for compensation and rewards has transformed into a more modern approach focused on continuous compensation management, met with enthusiasm. Historically, enterprises followed a cyclical process, assessing market conditions annually, or less frequently, to ensure competitive and fair employee remuneration. While this structured method helped gauge market trends, today’s competitive landscape has prompted enterprises to adopt continuous planning as a crucial strategy. Those that use technology to constantly monitor and adapt their compensation plans will be better equipped to stay agile and responsive in an ever-changing market. By 2027, the compensation processes in one-quarter of enterprises will be deemed ineffective and require a strategic assessment as to whether the methods and systems are aligned to desired priorities and values.

Long-standing behaviors of compensation professionals have many businesses still leaning heavily on spreadsheets for managing and reporting data during compensation cycles. This process creates barriers for collaboration and deprives the enterprise of the benefits to be recognized through the adoption of compensation technologies. Research indicates that nearly one-third of enterprises using spreadsheets encounter occasional errors that result in incorrect employee payments, with an additional one-half identifying error before payment is processed. In 2024, there are far too many enterprises that still depend on spreadsheets in their compensation practices. Fortunately, today's top rewards platforms have evolved to offer a more user-friendly experience that mimics spreadsheet layouts, drastically reducing the learning curve while providing superior security and version control. Software today now includes powerful visualization tools, seamless integration with employee data and market pricing information, and enhanced modeling capabilities for what-if scenarios—far surpassing what traditional spreadsheets can deliver. These systems significantly reduce the risk of data errors, which can lead to financial discrepancies or employee dissatisfaction, and position organizations for greater accuracy and efficiency in their compensation practices.

Today, ensuring pay equity is more critical than ever as workers increasingly expect fair compensation across all demographics, including race, gender, ethnicity, age and even geography. This expectation aligns with the growing investor focus on environmental, social, and governance criteria, where social consciousness is becoming a vital consideration in investment choices. Coupled with evolving regulatory and legal requirements around pay transparency and compensation practices, the spotlight on pay equity is intensifying. Yet, strikingly, fewer than one-half of enterprises actively manage compensation equitably. To address these challenges, using these advanced systems, businesses can make informed and equitable compensation decisions, streamline compliance with regulations, and demonstrate a genuine commitment to fairness and inclusivity in their compensation practices.

Our Compensation Management Buyers Guide evaluates products based on their ability to deliver against the capabilities as defined to support general best practices for compensation management processes at large organizations. These capabilities include, but are not limited to, administration of employee wages, salaries, bonuses and benefits. It is important to evaluate software for the organization's specific needs because it can directly impact employee satisfaction, retention and compliance with legal standards. To be included in this Buyers Guide, products must include capabilities that support overall compensation operations and compensation management needs, as well as the needs of multiple personas involved in the compensation management activities (employees, managers, administrators and executives), integration with various tools and processes in support of compensation management practices, and support for multiple aspects of ensuring pay equity. Some of the providers featured in this guide may also offer features that support aspects of the compensation planning processes, but those capabilities are not in scope for this report.

This research evaluates the following software providers that offer products that address key elements of compensation management as we define it: ADP, beqom, Cornerstone OnDemand, Darwinbox, Dayforce, HiBob, HRSoft, Infor, isolved, Oracle, Paycom, Paycor, Paylocity, PeopleFluent, Salary.com, SAP, UKG, Unit4 and Workday.

This research-based index evaluates the full business and information technology value of compensation management software offerings. We encourage you to learn more about our Buyers Guide and its effectiveness as a provider selection and RFI/RFP tool.

We urge organizations to do a thorough job of evaluating compensation management offerings in this Buyers Guide as both the results of our in-depth analysis of these software providers and as an evaluation methodology. The Buyers Guide can be used to evaluate existing suppliers, plus provides evaluation criteria for new projects. Using it can shorten the cycle time for an RFP and the definition of an RFI.

The Buyers Guide for Compensation Management in 2024 finds Oracle first on the list, followed by Salary.com and ADP.

Software providers that rated in the top three of any category ﹘ including the product and customer experience dimensions ﹘ earn the designation of Leader.

The Leaders in Product Experience are:

• Oracle
• ADP
• Workday

The Leaders in Customer Experience are:

• Salary.com
• Oracle
• ADP

The Leaders across any of the seven categories are:

• ADP, which has achieved this rating in seven of the seven categories.
• Oracle in six categories.
• com in three categories.
• UKG in two categories.
• Dayforce and SAP in one category.
  
  

The overall performance chart provides a visual representation of how providers rate across product and customer experience. Software providers with products scoring higher in a weighted rating of the five product experience categories place farther to the right. The combination of ratings for the two customer experience categories determines their placement on the vertical axis. As a result, providers that place closer to the upper-right are “exemplary” and rated higher than those closer to the lower-left and identified as providers of “merit.” Software providers that excelled at customer experience over product experience have an “assurance” rating, and those excelling instead in product experience have an “innovative” rating.

Note that close provider scores should not be taken to imply that the packages evaluated are functionally identical or equally well-suited for use by every enterprise or process. Although there is a high degree of commonality in how organizations handle compensation management there are many idiosyncrasies and differences that can make one provider’s offering a better fit than another.

ISG Research has made every effort to encompass in this Buyers Guide the overall product and customer experience from our compensation management blueprint, which we believe reflects what a well-crafted RFP should contain. Even so, there may be additional areas that affect which software provider and products best fit an enterprise’s particular requirements. Therefore, while this research is complete as it stands, utilizing it in your own organizational context is critical to ensure that products deliver the highest level of support for your projects.

You can find more details on our community as well as on our expertise in the research for this Buyers Guide.