Our expectations of compensation management systems have grown as they have become more capable and we get better at using them.  A not-so-subtle shift (for the better) has already occurred and you can take advantage of it and get ready for new capabilities in the offing.  No more planning in a comp silo!

The Downside of Waiting for the Roll-up
Tools and systems for compensation management have come a long way, but if there’s a reason to invest in a new system it’s because spreadsheets and stand-alone applications, as ubiquitous as they are, still don’t do a great job of eliminating compensation inconsistencies.  How can they?  Most require a budget roll-up at the end of the planning cycle and by the time that’s done, however clever the macros, there just isn’t time to really analyze the overall quality of the corporate plan before it’s paid out.  Even if everyone using an individual worksheet has the best intentions and wants to do the right thing from budgetary, competitive and fairness perspectives, inconsistencies will still occur if there isn’t integration with goal and performance management systems or reporting and analytics.  Automating the basics is good, but it’s not enough.

Reducing Compensation Inconsistencies
Enter the suite of integrated HR applications.  Fortunately, there are a number of improved system options today which implement compensation management in the context of goal and performance management and also integrate real-time or close to real-time reporting and analytics.  These systems reduce compensation inconsistencies.  Here’s how:

  • Compensation plans are developed with adherence to stronger guidelines linked directly to performance achievement and compa-ratio/position in range.
  • The individual employee’s plan is developed and approved in the context of other employees’ plans, not in an informational vacuum.
  • Automated workflow sends the plans through appropriate review and round-table processes so additional stakeholders can comment and collaborate.
  • Optionally, calibration and stack ranking tools are available to supplement the planning worksheets.
  • Analytics point out the strengths and flaws in the overall trends of the plans.

These tools lend an additional pair of eyes which contribute to far more consistent compensation plans than ever before.

Improving Workforce Performance
Beyond the reduction of inconsistencies, today’s robust compensation and HR systems are beginning to focus on improving and measuring workplace performance.  Efficient processes come from doing things right.  Effective processes focus on doing the right things.  True transformational workforce performance comes from doing both.  Today’s compensation management systems which pull in goal achievement and performance measures link pay to both the achievement of strategic goals and to the way the employees achieve them. Real-time analytics tell the story and remove guess-work and speculation.

Retaining Valued Employees
SAP’s Workforce 2020 survey notes that “Only 39% of executives say their company offers competitive compensation.  But what matters most at work to employees is competitive compensation.  When ranking the importance of benefits, competitive compensation and bonuses/merit-based rewards rank highest among employees.  Other benefits and workplace “perks” are far less important.”

I’ve worked with many companies who would like to drive increase guidelines by both performance ratings and compa-ratio/range-position metrics.  They would also like to base budgets on models that take both into account.  But all too often they say “unfortunately, we don’t trust our compa-ratios” so in the end, they remove them from the guideline equation, leaving only employee performance as the driver.  It’s far better to reward employees based on both their performance and a competitive place in the employment marketplace.  Today’s HR-system suites which make job families, roles, employee job titles and classifications visible and then integrate these elements into compensation management are foundational to competitive pay.

Integration and Collaboration
Systems are not a panacea, no surprise.  But an integrated, more collaborative approach to compensation management is already here and gets us out of the comp planning silos.  Climb out!