Return on investment is an important measure of any software purchase. 

You can already hear your CFO asking: 

How will this new platform pay for itself, and how quickly?

Fair question. Implementation of any new tool can be expensive and labor intensive. Human resources teams need to maximize their investment before committing to any company wide solution.

In our experience working with people operations teams at hundreds of high growth startups, we believe that a compensation technology solution pays for itself many times over, if it is the right solution.

Comptech isn’t an operational expense, it’s an investment in turnover prevention. You’re buying time, speed and sanity. And it scales.

Considering employee retention is the livelihood of your business, why wouldn’t you ensure that you’re managing it to the best of your abilities?

We can all agree that merit cycles are time consuming, burdensome, and oftentimes a manual process. Worse yet, if they base employee compensation planning on stale, outdated data, then their company is vulnerable to bias, salary inequities and other fair pay problems. 

Comptech streamlines that entire process so HR teams can focus less on processing spreadsheets and more on developing and retaining top people. 

In our recent post, we explained what comptech is, where it came from, how it works and why it matters. Building off of that definition, in this post we will explore the return on investment of compensation technology. By the end, we’re confident you’ll have an answer to the question, how will this new platform pay for itself, and how quickly?

The Cost Of Losing One Employee

One lens through which to view a comptech investment is employee retention, which is as important (if not more important) than acquiring talent. At any given organization, a single departure can lead to numerous expenses, and more than just the financial ones. 

One key employee leaving can become the rock in the organizational pond that sends expensive ripples in all directions.

Now, the exact cost is tough to pin down, since every company is different. It also depends on the level of seniority of the employee. Here’s a collection of the most recent research on the true cost of employee retention:

• Gallup reports that the cost of replacing an individual employee can range from 50%-100% of the employee's annual salary.
  
• G&A Partners shows that the average cost to replace an employee is approximately 50% percent of their annual salary.
  
• Employee Benefit News reveals employers spend an average of 33% of a worker’s annual salary to replace just one employee.
  
• SHRM reported that on average it costs a company 50%-75% of an employee's salary to replace them.

These soft and hard costs include, but aren’t limited to:

1. Separation Costs: Off boarding and exit interviews, severance payments, unemployment, continued benefits
   
2. Transition Costs: Hours of lost work, coworkers picking up the slack, knowledge that left with the departing employee
   
3. Hiring Costs: Advertising job openings, recruiting, interviewing, assessments, background checks, equipment, training and onboarding
   
4. Cultural Costs: Reduced morale company wide, fearful employees pursuing other work opportunities, negative online reviews from departed employees
   

In short, depending on which employee departs, that separation event might cost companies between $50,000 – $100,000.

Which begs the question:

If there was a technology to prevent even one great employee from leaving, would you use it? 

Many human resources and people operations professionals would answer a resounding yes.

Every company seems to be trying to crack the employee retention nut. Particularly in a buyer’s market when candidates have more choices than ever before.

Naturally, there is no shortage of strategies on how to retain employees. But considering that jobseekers continue to rate compensation as one of the most important considerations to make when contemplating a job change, organizations can reduce the likelihood of paying these high costs if they’re more strategic about investing in the right HR tech stack.

How CompTech Pays For Itself

Comptech has a strong return on investment because it solves many of the leading problems that traditional compensation practices create. Based on our ongoing customer conversations, here are the leading pain points, as they relate to three key stakeholders:

• People Leaders: They are drowning in spreadsheets. They're logging into multiple systems and can't integrate them. Departmental friction is too high. They struggle to build trust with executive teams. Their outdated numbers lead them to pay under the market. And it’s not scalable making comp decisions on gut feel, instinct or guesswork. Does that sound familiar to you?

• Recruiters & Hiring Managers: They are spending too much time going back and forth with candidates. They’re not able to visualize the lay of the compensation land. Offers are noncompetitive and candidate decline rates are high. Trying to explain key equity terms to employees is confusing and exhausting. And talent teams are devoting resources to taking candidates through the interview process, only to lose a third or half of them at the offer stage. Have you seen similar issues at your organization?

• Candidates & Employees: They are confused about their total rewards packages. They’re not getting open communication with company leaders about compensation. It’s a buyer’s market and they’re seeking companies that offer their employees amazing total rewards packages. And they’re skeptical about the quality of data managers are using to calculate their salary ranges. Have you ever lost a top candidate to a better offer?

It’s tough to estimate how much these problems cost companies per year. Tens of thousands of dollars? Hundreds of thousands of dollars? A million dollars? Priceless?
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The bottom line, that cost would greatly outweigh the expense of implementing a new compensation software.

Your time, speed and sanity is too valuable to sacrifice.

If you were able to prevent even a small cohort of employees from leaving to find better compensation packages each year, that effort will more than recuperate the cost of a software platform. Relatively speaking, comptech would be pennies on the dollar when compared to the expense of payroll, not to mention the other costs incurred. 
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Ultimately, using a comptech solution will set you up for success to pay transparently, fairly and accurately in the future.