You Have to Pay to Play

As many companies begin their budgeting process for 2008, they will be looking closely at one of their biggest big-ticket items: compensation.

Doing a better job of managing compensation expense should be on any senior finance executive's priority list. Companies routinely miss opportunities to handle this aspect of their business much more effectively. With competition for talent as fierce as it is these days, retaining and attracting the best people is important to the success of any organization. Besides, there are control aspects to compensation that companies need to manage to reduce the risk of noncompliance. Incentive compensation plans can pose control risks if not managed properly.

Just because you have a relatively up-to-date human resources management system (HRMS) doesn't mean that you have all of the bases covered. HR systems handle most of the record-keeping functions, but many lack other important elements. Two of the more important ones are "HR Compensation Management" and "Sales Compensation Management." Fortunately, affordable software is available to fill the gaps. Midsize companies also have Software-as-a-Service (SaaS)/on-demand options that eliminate the need to implement and manage the software.

Compensation management demands accuracy, consistency, visibility, and oversight as well as compliance with legal and regulatory requirements. We find that many companies have multiple systems in place to manage a range of compensation tasks, making it difficult for them to achieve any of these. We also find that many executives are blissfully unaware that they have a problem.

When did your company last assess in detail how well it was doing on any of these? Incentive compensation is an area that can be quite complex for certain companies. If your organization has a direct sales force or sales associates on some sort of a commission plan, odds are that someone, somewhere, is using a desktop spreadsheet to calculate what people are owed. In the past, this may have been the most cost-effective approach, but today it poses an unnecessary degree of risk that people will be overpaid, that compensation will not be consistent (that is, it will pose a discrimination risk), or that compensation expense will be much higher than what was budgeted.