Employees might be driven by a myriad of motivators, but perhaps the biggest is simply getting a regular paycheck. Ensuring that compensation system is effective is not just important but imperative. But few organizations evaluate their compensation management maturity or identify shortcomings.
Compensation management has become a higher profile topic in recent years among finance executives, as organizations seek to manage their processes more efficiently and align it to their strategic workforce performance goals.
Ventana Research recently conducted a Web survey of 145 executives and managers across a broad range of roles, titles and organizations of various sizes. The research firm offers six recommendations to executives and managers in HR, finance and operations who are engaged in evaluating or implementing improvements to compensation management processes and systems.
Assess your maturity and invest for improvement.
Ventana assesses organizational maturity using a four-level scale. In this benchmark research, the distribution of maturity levels among the companies was fairly even but skewed somewhat toward the higher end. The research found 28 percent of the participating organizations have done sophisticated compensation management deployments and are at the most advanced innovative level of maturity.
Those at the intermediate levels, strategic (one step down from innovative, 36 percent) and advanced (another step down, 20 percent), are looking to satisfy their requirements and address existing impediments but have not done so fully and are still using spreadsheets for compensation activities.
Those at the tactical (lowest) level (16 percent) have no plans to improve or deploy specific compensation systems for areas that could benefit, such as sales and contact centers. Use these results and maturity index framework to assess your own organization's maturity and to determine where you can apply improvements to your people, processes, information and technology.
Focus on outcomes for improving workforce performance.
Before an organization can take action to realize the benefits of investment in total compensation management, HR and finance must ensure they agree on direction. The benefit companies most desire is the ability to align their workforce to their business strategy and goals (52 percent). That is assisted by efficiency of process (50 percent); visibility into employee compensation, performance and succession related information (40 percent); and establishing pay for documented performance (39 percent).
Replace outmoded technology to increase efficiency.
The research identified a disturbing disconnect between participants' articulated need for better processes and capabilities and the absence of effective total compensation management systems. Use of spreadsheets is so widespread in more than half of organizations that even small improvements should yield benefits. And far more than small improvements are available from today's improved compensation management systems.
Organizations should assess available applications to determine what may meet their needs cost effectively. As other companies take steps to find more adequate systems, those that don't are likely to fall behind in the race to acquire and retain talent.
Work to integrate appropriate sources and systems.
Some organizations are trying to rationalize their total compensation management and reduce use of spreadsheets but many are still considering the deployment of stand-alone compensation systems—systems that are designed to support specific departmental requirements for sales, executives or field service and contact centers. This research makes clear that to drive improvement it is necessary to integrate existing information sources with compensation and workforce performance or talent management systems.
This integration will require the organization focus not just on the usability and functionality of the applications but also the architecture needed to support integration to other internal systems, including the Human Management Resource System and spreadsheets, as well as external hosted or on-demand systems. Your organization should explore ways to streamline the integration process and then find a compensation system that can become the repository of the single view of compensation at every level, from individual to organization. If separate dedicated compensation systems are needed, they should be designed to support integration into the system that provides the integrated view.
Understand what you really need.
Make sure you fully understand what your executives and managers want and need from compensation management so you can determine the type of application to use and the sources of data to draw upon. Individual compensation management software systems have relative strengths and weaknesses. Some are better at managing variable pay components while others have better capabilities for making critical decisions about workforce planning and strategy.
By clearly defining your business, user, information and technology requirements, you will be better equipped to evaluate how well providers of total compensation management applications will satisfy your particular needs. Bear in mind it is possible that no single dedicated application will meet all of your needs; perhaps bringing together specific capabilities from different systems will be required. If the latter, integration capability is essential.
Plan your program for total compensation management.
In Ventana's research, 72 percent of participants said total compensation management systems are important or very important. In addition, many organizations are adding variable pay components to compensation. This demand and a lack of confidence in existing processes among more than half of organizations are two compelling reasons to make building a plan for total compensation management a top priority.
Enlist sponsors from finance and executive management who will support the required investments and provide organizational leadership for the program and its goals. With improved processes and systems that work together efficiently, you can reduce friction in the workforce and focus on driving performance improvement.
For more on Ventana Research's Total Compensation Management Benchmark Research, click here.