Compensation planning solutions align rewards with performance

Automated process reduces complexity, strengthens workforce and delivers higher returns to shareholders

Today, competitive organizations recognize that aligning rewards with employee performance creates a stronger, more productive workforce and are turning to compensation planning solutions and services to handle complex compensation strategies while increasing shareholder value and corporate dividends.

As business and technology has evolved, so has the manner in which organizations deal with the complexities of enterprise compensation management. Paper-based and homegrown systems have given way to intuitive applications that assist companies in aligning rewards with employee performance. In fact, regardless of organizational size, every corporation can benefit from compensation planning automation - - to alleviate security risks, corporate governance costs, human errors and distractions outside core competencies.

From Paper To Process: Evolution of Compensation Management
As one of the largest single line item expenditures for companies, compensation and benefits often represent a huge amount of a company’s cash flow. Managing that cash flow well translates to motivating high performers with incentives and communicating expectations to increase productivity for under performers. Rewarding top performers and managing out those that do not perform according to business expectations maximizes compensation/benefits spend, delivering higher productivity gains for the organization. Using paper-based or manual processes does not offer a holistic view of the workforce and prohibits collaboration between departments, and prevents organizations from making “real-time” strategic compensation decisions to meet the needs of their business.

Over the last ten years, the way companies have approached compensation management has been evolved as paper processes have yielded to various forms of automation. True, every company does performance and compensation management and most started using some type of paper-based process. Thankfully, the days of ribbon-tied “personal and confidential” manila envelopes are fading away, but many companies can still recall having employees fill out paper forms and sharing them with human resources via the inter-office envelope. However, these solutions did little more than track expenditures as opposed to offering an effective solution to better manage compensation dollars.

As technology progressed, applications such as Microsoft Word and Excel emerged as the primary solutions used for sharing information and tracking compensation and benefits. Simple spreadsheets gave way to databases and the process advanced along with the technology. The new technology enabled organizations to layer in areas of complexity such as capturing bonuses along with base salary increases but did not address the need to better reward top performers and motivate the workforce. In addition, by capturing details such as promotion decisions, database information also needed to include job titles and descriptions thereby adding a further level of intricacy to the process.

Along with increasing management complexity, the cost of maintaining these systems was exorbitant, with costs spiraling as complexities were added. Originally elected as a less-expensive fix for compensation planning, companies found that they cannot keep pace with business changes and challenges using these homegrown systems plus gain control of their compensation planning process.

Pitfalls of Paper-Based Processes
One of the biggest obstacles using a homegrown system is not having a holistic or enterprise view of the compensation planning process. Paper-based systems do not support effective management of compensation resources to make strategic pay decisions.

IT resources that were available at the inception of the compensation planning solution may also no longer be in place. Without those resources, management of the application can be expensive and time consuming, resulting in out-dated plan specifications, possible security breaches and manual data entry errors.

In addition to the costs of maintenance, the cost of not having synergies across the business and taking a best practice approach are also detrimental to an organization. Without proper checks and balances as well as a corporate-wide philosophy on compensation planning, it is impossible to know if you are adequately rewarding top performers and not over rewarding under performers. Recognizing that aligning rewards with achievements results in better organizational performance, many companies are putting more focus on pay for performance compensation strategies which are more efficiently and effectively handled by a “best of breed” compensation planning solution.

Compensation Planning Systems Reduce Complexity, Streamline Process and Drive Accurate Pay Decisions
Compensation planning systems offer a more dynamic and efficient management approach, promotes high user adoption rates throughout the enterprise, supports the entire compensation process and gives managers real-time access to quality information to drive fair and consistent pay decisions.

Compensation planning has become an integral part of daily business related to overall organization success and is no longer approached as an annual process. Instead, it continues to rapidly evolve from a merit increase or cost-of-living model to pay-for performance initiatives that drive accomplishment and innovation within companies. Adding to these trends are the multiple variables involved in paying a global workforce and the emergence of the corporate governance requirements that necessitate standardizing on a common platform to drive common practices.

As a result, enterprise solutions have become even more critical to support better decisions, ensure fewer budget overruns, and provide a full transaction audit trail to support compliance efforts.

What To Consider When Partnering With A Solutions Provider
Regardless of size, every organization can benefit from automating their compensation programs. The knowledge and experience offered by a third-party solutions provider delivers optimized management of compensation resources, resulting in superior organizational performance.

There are four fundamentals that organizations need to adhere to, thereby ensuring success. By establishing a proper foundation, the rewards of a compensation planning solution will be realized through better process management and productivity of the workforce.

Do Due Diligence. Laying the cornerstone for success begins with having an understanding of the scope of what needs to be accomplished. Taking a firm, hard look at what processes are in place today and what they need to be to accomplish your goals to help establish a solid game plan. Using a best practice approach will change your business processes for the better by identifying where you need to streamline or improve on your current processes.

Get Senior Management Buy In. Having the backing of executives helps the organization understand that the investment in a compensation planning solution or service is a purposeful investment. The solution will have a life span of five or more years requiring a commitment both at the time of purchase and into the future as the solution continues to meet changing business needs. Management needs to understand that resources on staff will need to manage not only the product but the process as well. Although administrative tasks are alleviated through technology, managers will need to control the process.

Focus On Data Quality From The Onset. Once companies decide to implement a compensation solution, they need to focus on data quality and validate their information. In addition to being an opportune time to examine and improve data quality, this crucial step will ensure the organization realizes the full benefits of the solution. If the data in the system is not correct, it will not be meaningful to managers making decisions because the information they are working with is wrong. For example, if salary, title and organizational information are wrong, users are going to perceive a flaw in the system rather than the data itself. To maximize their investment, every organization should have a best practices approach to data quality and implement a data center of excellence to ensure continual data improvement.

Identify Synergies Across the Organization. Corporate governance, the system by which business corporations are directed and controlled, ensures that processes are in place that contributes to financial improvement of an organization. Organizations that support multiple business units need consistency to have stronger governance across the board and be able to dictate to their organizations how they should collect information, create their business processes and communicate their compensation philosophy.

If any of the key elements needed for system success are missing, a compensation planning solution is not likely to achieve its full potential. Once these elements are in place, the corporation can start to realize higher returns on investment that come from utilizing compensation planning software and services to motivate and reward the workforce.

Companies Trend Toward Pay For Performance
Pay-for-Performance is an emerging trend that is best realized through compensation planning software and solutions. Pay-for-Performance systems - linking employee compensation to measures of work quality or the accomplishment of individual, team or business goals – contribute to organizational success and are becoming a common feature in the corporate landscape.

Embracing a Pay-for-Performance philosophy can increase organizational effectiveness by aligning employee effort to the organizational mission, helping to attract and retain top performers and encouraging managers to give real feedback to their employees, especially poor performers.

When implemented correctly, Pay-for-Performance provides tangibility to the workforce and delivers an incentive mechanism to make employees work harder and perform around organizational goals. According to the 2005 Watson Wyatt Human Capital Index, Maximizing the Returns on Your Human Capital Investments, "The best organizations make substantial distinctions based on performance. Organizations that pay top performers more than 4.5 times the bonus payout of lower performers earned a 3 year Total Return to Shareholders (TRS) of 47 percent, 49 points higher than that of organizations which make smaller distinctions, paying top performers about 2 times the payout for lower performers."

Having distinct percentages between highest performers and those that do not perform well send clear messages to the workforce and get people excited about working hard and producing results on behalf of the organization.

Since Pay-for-Performance is focused around aligning business goals, an automated solution establishes checks and balances to be such high performers are being rewarded well and that low performers are provided with feedback to help them improve on their performance.

Best Practice Approach Delivers Guidance and Governance
When a large blue-chip technology company wanted to move from a culture of entitlement to one of Pay-for-Performance, they implemented a compensation planning solution that would reduce the complexity of compensation planning, enable their managers to make better pay decisions and improve the organization’s ability to effectively communicate expectations and goal achievement rewards.

Replacing an existing system that varied across multiple business units with one that addressed their global workforce drove consistency across their process and enabled managers to make more strategic business decisions. By having a global solution, the company was able to effectively communicate their Pay-for-Performance philosophy. Now, individuals understand if they meet individual and corporate goals, they can achieve incentive payouts recognizing their role in helping the company to succeed.

Taking a best practice approach requires the chronicling of existing processes, documenting what the solution needs to accomplish, getting executive buy in, establishing a budget, and communicating to employees and shareholders how they will be rewarded for contributing to the success of the organization.

Adopting a best practice approach also includes partnering with the right vendor who shares your vision of success. When choosing a partner, make sure they are someone you feel comfortable conducting business with. Their culture and philosophies should mirror that of your organization. Look at a company’s flexibility in how they approach meeting business requirements. Be open to guidance and recognize that third-party expertise offers a breadth of experience that can deliver a high-level perspective of different approaches to solve business challenges. Choose an organization that will be able to grow with you and meet current as well as future needs. Recognize too that adding features and future upgrades or product improvements are par for the course for any software solution and it is okay to hear that features may not be available today but will be added in the future. Most importantly, do due diligence, talk to references and be certain to have an elevated level of trust with the company you chose to partner with.

Replacing an outdated or paper-based system is best accomplished immediately following annual salary planning to allot enough time to make sure the product and process works to meet organizational needs. Choosing a compensation planning solution will improve workflow as well as enable managers to make more savvy business decisions. By offloading transactional processes, the organization can increase corporate guidance for making compensation decisions and reap the benefits of a standardized process. An automated solution will enable the workforce to remain focused on their core competencies while communicating expectations and goal achievement awards. For the corporation, implementing a compensation planning system will increase shareholder value as well as corporate dividends.

David Turetsky is the Director of Product Management, Workforce Management. Transforming the delivery and adoption of HR services across the enterprise, Workscape's solutions maximize ROI and enable a higher-performing organization. An innovator in HR self-service, Workscape provides a full range of outsourced HR solutions including benefits administration, compensation management, performance management, employee self-service and manager self-service, as well as an employee portal. Workscape's applications and services are configurable to support each client's unique business processes, easily integrated into multi-vendor environments to ensure protection of existing technology investments, and have been embraced by millions of employees worldwide.