Compensation Cycle Management Software Selection Guide

What is compensation cycle management software?

Compensation cycle management software automates and streamlines the employee compensation review process, including salary adjustments, bonuses, equity grants, and performance-based pay decisions. It replaces manual spreadsheet processes with secure, integrated systems that reduce errors and save time.

Key benefit: 67% of managers using spreadsheets report losing considerable time, while dedicated software provides automation, data accuracy, and better governance for sensitive compensation decisions.
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‍Click here to download the 2025 Compensation Cycle Management Software RFP template

(written in partnership with Compensation Leaders and Procurement Managers 🤝)

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Key takeaways:

• Compensation leaders increasingly use compensation cycle management software to minimize risks and inefficiencies associated with traditional methods.
• There are eight critical factors to consider when selecting compensation cycle management software, ensuring it aligns with your business' specific needs and compensation philosophy.
• Evaluate compensation cycle management tools by researching, setting specifications, soliciting proposals, shortlisting candidates, requesting demo environments, and establishing a follow-up plan.
• Make sure the software accurately reflects your unique compensation process by demanding a demonstration of your specific workflow to identify discrepancies.

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Why do you need compensation cycle management software?

Retaining top talent hinges on effective compensation planning and management. Especially when it comes to compensation reviews. But until now, the compensation adjustment methods you’ve used might kindly be described as “cumbersome.”

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Your HR team, finance leaders, and managers are all frustrated with the current way of doing things, and they’re counting on you to find a streamlined process that removes the risk, lost time, and confusion they’ve all experienced.

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Choose the right solution, and you’ll look like a star. Choose the wrong solution, and you’ll find yourself starting all over again.

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This guide covers the key factors you need to consider so you can nail the choice, roll out a process that everyone loves, and earn your change management stripes. 👇

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Which Compensation Cycle Management Software Should I Choose?

Different features, different tools, different goals. It's tough to zero in on exactly what you need when there are so many HR tech tools out there.

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After all, so many teams have picked solutions that felt perfect until they realized:

• They didn’t have the flexibility they were promised
• Their teams weren’t empowered to make changes as needed
• They were paying more than expected to configure and launch planning cycles
• They’d still need to manage some of their efforts in spreadsheets and communicate manually via email (!)

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Once you realize you’re changing your process to match the limitations of a tool, it’s too late.

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So pause, consider the biggest challenges in your current compensation cycle process, and consider your team's most important use cases.

What are the 8 critical factors for selecting compensation software?

When evaluating compensation cycle management software, eight critical factors determine whether a solution will truly meet your organization needs:

1. How flexible should compensation software be for my organization?

Your organization’s compensation philosophy and process are unique.

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Maybe the way you calculate employee increases is simple, or maybe it’s highly complex. The same goes for your process for reviewing, adjusting, and communicating comp changes.

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If your company meets any of the following criteria, you’ll likely need tools with greater flexibility to match your compensation cycle needs:

• You have over 200 employees
• Your employees are spread out across multiple geographic regions
• Your compensation plans include equity or variable compensation
• Employee compensation decisions undergo reviews and approvals across several organizational levels
• You are growing your team’s headcount

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Configurability and customization are priority number one.

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2. What integrations does compensation software need?

Think about your existing “HR Stack:” HRIS, ATS, Performance Management, Equity Management, and Payroll.

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When it comes to compensation cycles, you need data from all of these systems (and often more) to make the best decisions for each employee and the company. And you need to trust the data is up-to-date and accurate.

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This is why the quality of a compensation cycle tool’s integrations and automation capabilities are very important.

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In Aeqium's State of Compensation Review Management Survey, 65% of respondents stated their most significant frustration is the time-consuming nature of manual processes involved in compensation review cycles. This includes managing spreadsheets, ensuring data integrity, holistically analyzing planned changes, and the overall time investment required.

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"Managing the spreadsheets is my biggest challenge. Keeping them accurate and up to date with changes and not causing any formula errors takes a lot of time."
- Director of Human Resources

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To this end, you need to understand whether each integration you need is available out of the box, through customization at no cost, through customization at an additional charge, or is unavailable.

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3. What support and training should compensation software provide?

Rolling out a new tool or process is always a bit scary.

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It’s much easier to put your name on a new software when you can clearly communicate how your team will be onboarded, trained, and supported to your team. Especially when you consider that 80% of surveyed HR leaders listed "coaching managers on the compensation review process" as one of the most challenging parts of their process.

• Expected time to onboard
• Training timelines for admins, reviewers, and leadership
• Guided workflows within the product to drive adoption
• Timelines for building and launching your first compensation cycle to managers
• Any costs associated with onboarding

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The software you select should support onboarding via a combination of customer support and the product itself.

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It’s also important to review your team’s skillset. Do you have a strong team with deep expertise in compensation management, or will you need to pay consultants to provide direction on how to execute your process?

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One of the major pitfalls when choosing a compensation cycle management product is the necessity of purchasing additional “managed services.” If you’re considering partnering with a provider that offers software and consulting, where is their real expertise?

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Are they focusing 50% of their effort as a company on software development and 50% on consulting? What split would you feel comfortable with when it comes to nailing your process? If you do need outside consulting support, you should seek out dedicated consultants.

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Another key is understanding exactly which changes you can make yourself vs. which ones you need to wait for customer success to make…

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4. How important is self-service capability in compensation software?

Timeliness of compensation increases is an essential component of employee engagement. Any Total Rewards or Compensation leader who has ever needed to make a change mid-cycle knows that the ability to quickly adjust the process can mean the difference between your employees receiving compensation changes on time.

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To this end, most buyers want more control over their process and prefer the option to make changes themselves while still having access to expert support for heavier lifts.

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If you require less control, ask about the costs associated with setup, configuration, and any ongoing changes.

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You should consider where and when self-service is most important to you, for example

• Adding/deleting/moving fields
• Creating custom fields and formulas
• Designing roles and setting up approval chains
• Setting up custom logic and guided workflows for managers

If self-service is important to you, insist that any vendors provide you with a hands-on demo environment for your team to test drive. You want to be sure that making changes is as easy as advertised before making a decision.

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5. What data and reporting capabilities should compensation software have?

Most compensation leaders face challenges with visibility during their cycles. Reviewers struggle to access necessary data for making informed employee compensation decisions, while leadership grapples with understanding the cycle's progress and outcomes.

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According to our Compensation Review Management Survey, managers tasked with reviewing employee compensation and making increase recommendations rated their ease of accessing necessary data and information a 6.13 out of 10.

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“My biggest frustration is not feeling like I have a full view of information I'd like to have when thinking about compensation.” - Director of Operations

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Sound familiar?

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Since your leadership team and managers will likely be direct users of the tool you select, it’s important to document their needs upfront.

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You likely already have a strong idea of what information these two groups need to see based on the types of questions from previous cycles.

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Enabling Managers: Ensure managers have access to critical information, such as:

• Employee salary details
• Variable compensation, equity, and performance data
• Historical changes in these areas
• Visualizations showing where employees stand in terms of salary and equity bands

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Informing Leadership: Help your leadership team grasp the bigger picture by providing data on:

• How salary and equity increases compare to the budget
• Breakdowns of salary percentage changes
• The overall progress of the compensation cycle
• Proposed recommendations by employee, along with simplified collaboration tools

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Remember, it's crucial to identify and list these key data points in your Request for Proposal (RFP) to ensure the software you choose can meet these needs.

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6. What governance features are essential in compensation software?

Compensation decisions are both sensitive and important – exactly the sorts of decisions that require precise approvals and careful verification before they’re finalized.

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When one wrong decision or a stray email sent to the wrong person can create a disaster that’s difficult or impossible to remedy, it’s critical to have strong governance and controls to ensure that your compensation cycle stays compliant with your policies and is executed without a hitch.

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When assessing a compensation cycle management platform, it’s necessary to understand exactly the types of governance and controls that the product will provide. Here are some key points to consider:

• Does the platform allow for multiple layers of approvers, matching your organizational structure?
• Does the platform allow for flexible customization of approvers – for example, allowing you to designate certain trusted departmental leaders to make final decisions?
• Are role-based access controls (RBAC) and approval chains clearly documented in the product?
• Does the platform provide secure communication of compensation change decisions?

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7. What security and data privacy features should compensation software have?

Managing compensation cycles involves handling a large amount of sensitive employee data.

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When evaluating potential compensation management software, it’s crucial to understand how each vendor safeguards your employees' privacy and confidentiality.

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This should include a close review of user-permission features like access controls and custom review chains, as well as true security features.

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Here are key points to include in your Request for Proposal (RFP) to assess their security protocols:

• Ask the vendors to detail the specific measures they implement to protect client privacy and maintain confidentiality.
• Request a brief description of their security strategies, including how they control access to the software and the use of encryption to protect data.
• Ask if they have ever experienced a significant cybersecurity incident, and if so, request a detailed description and how it was handled.
• Confirm whether the vendor has robust data recovery systems in place to safeguard against data loss.
• Verify if their software is SOC 2 Type 2 certified, as this indicates a high level of security and compliance with industry standards.

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Including these points in your RFP will help ensure that you choose a software vendor that prioritizes and effectively manages data security and privacy.

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Remember, these security measures are essential and should be a given for any compensation software you're considering. They're not just nice-to-haves but fundamental requirements for safeguarding your data.

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8. How should you evaluate compensation software pricing?

When considering compensation management software, it's important to differentiate between the software's price and its value to your organization. While the cost is a significant factor, its true value can often be underestimated.

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Outline the benefits and improvements you expect a new solution to bring to your HR team, managers, and leadership. Each group can benefit from streamlined processes and improved accuracy and will ultimately derive their own value from the product

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Here are a few tips to consider when exploring pricing between different vendors:

• Discuss the broader impact of employee disengagement, mismatched pay (both too high and too low), and time invested into compensation cycles with your finance leaders to fully understand the financial implications of your compensation planning process.
• Compare the pricing of different vendors. Your goal is to find a solution that meets your key needs without overspending.
• Remember that high-priced solutions might not always justify their cost, and the cheapest options might not meet all your needs.
• Understand exactly what you're paying for. Are there additional charges for setup or consulting services?

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When it is time to prepare your RFP, make sure you have clear written answers on key pricing considerations.

• How is the software priced? Is it a flat fee, user-based, or tiered?
• Inquire how the price might change after the first year. What increases or additional costs should you expect?
• Ask about any potential hidden costs that could arise during the contract period.
• Don't hesitate to negotiate on setup fees or other costs. This can be an effective way to reduce overall expenses.

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Asking these questions will help you choose a compensation cycle management software that offers real value for your investment.

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Should you use an RFP when buying compensation software?

Always start your journey to buying compensation cycle management software with a detailed Request for Proposal (RFP). This step ensures that all your important questions get answered and simplifies discussing the tool with your team.

Frequently Asked Questions (FAQ)

What is compensation cycle management software?

Compensation cycle management software is a specialized tool that automates and streamlines the employee compensation review process. It handles salary adjustments, bonuses, equity grants, and performance-based pay decisions while replacing error-prone manual spreadsheet processes with integrated, secure systems.

What are the 8 critical factors for selecting compensation software?

The eight factors are:

1. Flexibility & Customization
2. Integrations & Automation
3. Support, Implementation, and Training
4. Self-Service Capabilities
5. Data Availability & Reporting
6. Governance & Compliance
7. Security & Data Privacy
8. Pricing & Value

How much does compensation cycle management software cost?

Pricing varies by vendor and typically follows flat fee, user-based, or tiered models. Focus on value over cost by considering time saved, reduced errors, and improved accuracy. Always ask about setup fees, annual price increases, and potential hidden costs.

Do I need an RFP to buy compensation software?

Yes. Always submit a detailed Request for Proposal (RFP) to ensure vendors address all your specific needs around integrations, security, governance, and pricing. An RFP ensures all important questions are answered and simplifies team discussions.

What integrations does compensation software need?

Essential integrations include HRIS (Human Resource Information System), ATS (Applicant Tracking System), Performance Management systems, Equity Management platforms, and Payroll systems. These integrations ensure accurate, up-to-date data flows automatically into your compensation decisions.

How long does it take to implement compensation software?

Implementation timelines vary by vendor and organizational complexity. Ask vendors about: expected onboarding time, training timelines for admins/reviewers/leadership, guided workflow setup, and timeline to launch your first compensation cycle to managers.

Why is self-service important in compensation software?

Self-service capability allows you to make quick mid-cycle adjustments without waiting for vendor support. This ensures employees receive timely compensation changes and reduces dependency on external consultants. Most buyers prefer control over their process while having expert support available for complex scenarios.

What security certifications should compensation software have?

Look for SOC 2 Type 2 certification, which indicates a high level of security and compliance with industry standards. Also verify: encryption protocols, access control measures, data recovery systems, cybersecurity incident history, and privacy protection measures.

Can compensation software replace spreadsheets?

Yes. Research shows 67% of managers using spreadsheets lose considerable time, while only 27% who stopped using spreadsheets report the same issue. Dedicated compensation software provides automation, better data accuracy, integrated workflows, and stronger governance compared to manual spreadsheet processes.

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Ready to begin? Click here to download our free RFP template. Just make a copy, and you're on your way to selecting the best compensation cycle management software for your needs.

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