Compensation Management Software Evolves with AI and Analytics to Drive Workforce Strategies, ISG Says

Total compensation management (TCM) software has become the core of most large enterprise compensation programs, combining multiple functions into one operating model that fulfills both financial and talent requirements, according to new research from global AI-centered technology research and advisory firm Information Services Group (ISG) (Nasdaq: III).

The ISG Buyers Guide for Total Compensation Management, produced by ISG Software Research, provides the rankings and ratings of 23 software providers and their products to support compensation design, planning, administration, analytics and communication. The research finds that the compensation software category has expanded to support increasingly complex enterprise requirements and continues to evolve amid the growing importance of analytics and AI for retaining and managing talent in a workforce. The ISG Buyers Guide for Compensation Emerging Providers, published in conjunction with the TCM report, rates and ranks 11 software providers that capture the innovation frontier of the compensation software market.

“Decisions about compensation have become continuous and cross-functional, requiring collaboration across finance, business and human resources in a shared environment,” said Matthew Brown, director of research, Human Capital Management, ISG Software Research. “TCM is an operating system for compensation that helps to make sure pay decisions are equitable, explainable and economically sound.”

Analytics is an increasingly important part of TCM software, the research finds. TCM platforms use analytics not just for retrospective reporting but to diagnose issues with compensation practices and prescribe actions to improve performance, especially around pay equity and regulatory compliance. In recent years, TCM has also become a system for both control and employee communication, ISG says. As companies recognize the strategic importance of employee experience for engagement, retention and trust, leading platforms incorporate more features to ensure transparency and help managers communicate effectively.

TCM software providers are beginning to use AI to meet enterprise talent and workforce retention needs. TCM platforms include models that generate recommendations, detect anomalies and simulate outcomes regarding salaries, bonuses and equity. Through 2027, the majority of enterprises evaluating compensation management software will include automated pay equity modeling and anomaly detection as requirements, ISG predicts. While they increasingly embrace AI, organizations also demand the ability to audit and explain its operation so compensation committees and managers can understand the rationale behind suggestions.