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The 2016 Compensation Impact Report – New Small Business Rules, Simple Pricing, and Love of the Cloud

Why Compensation Software Matters to Small, Mid-Tier, and Enterprise Organizations

Insights from the 2016 Compensation Impact Report

 

Introduction

Since compensation is the #1 reason that most people work for a company,  HR leaders invest a lot of effort to ensure that compensation is done right. For small companies,  the problem with doing it right comes at crunch time: four to eight weeks when compensation numbers are crunched  for final reporting.

The 2016 Compensation Impact Report shares findings that clearly separate small business from larger organizations in terms of needs, requirements, and ease of use.

Is compensation software  helping them to achieve that goal? We ran a survey of 204 HR professionals about  how they were using compensation software.  This report reveals what we’ve learned from the experiences and insights shared by HR professionals,  from entry level to executive in small, mid-tier, and enterprise  businesses.

The Compensation Impact Report - Why Compensation Software Matters to Small, Mid-Tier, and Enterprise Businesses
Download 2016 Compensation Impact Report

 

Key 1: Comp Plan execution is where problems usually arise.
Excellent compensation plans often get lost in translation due to inefficient tools like Excel.

Key 2: HR needs real-time insight to manage compensation.
You can’t wait until all the paperwork rolls up at the end of the process.

Key 3: Your compensation system must save time and money.
Be sure that the system has controls that ensure managers stay within budget, saving the organization from overspending and wasting time.

What is the impact of compensation on your company? (short survey)

Hope is in the cloud

If you are considering compensation software,  then an important question  is, “Do people find these systems effective and good enough to meet their needs?” Most do (see Figures 4 and 5). In particular, organizations are likely to be happy with cloud-based systems.

Compensation Software Satisfaction
Takeaways for Small Business

1. Most users are satisfied that compensation software is effective/easy to use and meets most needs (59% and 62%, respectively).

2. However, users are even more likely to be satisfied if it is a cloud-based system (76% and 90%, respectively).

 

Compensation Impact Report - Satisfaction with compensation software

Takeaways for Mid-tier and Enterprise Organizations

1. Mid-tier and enterprise organizations are more likely than small organizations to be satisfied that their compensation software is effective/ easy to use (71% and 74%, respectively).

2. However, users are even more likely to be satisfied if it is a cloud-based system (83% and 89%, respectively).

 


How much should companies pay?

We asked companies  how much they were willing to pay for a compensation planning system. Answers ranged  from organizations that couldn’t afford $25 per employee to those that would pay $75 to $100 per employee.  This distribution puts the average upper limit at around $50 per employee (see Figure 6).

compensation impact report - what would be too much to pay

Graph excludes participants who had “No opinion.”

 

Takeaways for all organizations

1. Most organizations won’t pay more than $50/employee for compensation softwar

2. 14% of organizations, presumably those with complex compensation needs, find that $75-$100/employee is justified.

3. The price will depend on the complexity and requirements of your compensation plan; many suites offer compensation software  as a cheap module addition to a suite.

4. Be sure that the solution offered will be able to execute your compensation plan because every business has a unique compensation plan.

What is the impact of compensation on your company? (short survey)

 


 

Where should you look for the payoff?

The survey showed  that HR managers are focusing on whether compensation software  can do what they need and do it easily. This isn’t wrong,  but to justify an investment  in software, don’t just emphasize  how it is good for the HR department; instead,  emphasize  how new software  is good for the organization  because  it improves the firm’s ability to manage compensation.

Takeaways for all organizations

1. The big value of compensation software comes from helping the organization to better manage its investment  in

2. An important secondary payoff from compensation software is that it improves efficiency within

3. Good compensation management helps to recruit and retain employees.

Download the 2016 Compensation Impact Report

The 3 Business Keys to Compensation Management – salary administration, bonus administration, and validation

Compensation management business

 

Salary administration and bonus administration are at the heart of compensation management, yet without validation of that data today, what you end up paying employees may cause trouble.

For example, your employees are looking at sites like Glassdoor and Indeed to determine what they should be paid. What are you doing, as a business, to validate what you pay, to employees and as a business?

You do salary administration to start off, with bonuses for key employees and achievements. When business is quite small, these can be handled simply. Yet to scale a business, moving beyond simple administration to validation – both in terms of measuring and ultimately managing employee compensation from a view to grow the company.

While the answer on how to do that is the subject for another post, the subject here is clear. Compensation management is more than just salary administration, it’s communication of value to an employee and to the business. Validation is not just in measuring, it’s in delivering the right pay to the right people at the right time.

Many companies take this for granted, which is why this basic intro is shared. While compensation management isn’t rocket science, the larger a company grows in employees and revenue, the more complex it becomes.

What is Compensation Management?

Every organization has a compensation plan, even if it’s not formally written. The goal of any compensation plan is to attract and keep qualified employees, who are motivated, and compensated, to achieve the goals of the company. The goal of compensation software is to execute that plan accurately, making it easy for employees of all levels to manage it.

Salary, bonus, and incentive administration are the core of compensation plans and software. While that sounds simple, in practice the complexity of bonus and incentive plans being accurately managed by multiple managers and senior executives is a challenge.

Compensation is more than the means to attract and retain talented employees.

Without the right compensation software, companies lose a competitive advantage for their biggest expense.  Many companies crunch their numbers over a focused, 30-60 days each year. If the bonuses, overtime, merit pay raises, performance reviews, and even stock/equity compensation are faulty, the company falters. In the rush to finish, poor software may require manual adjustments and updates at the last minute, instead of ensuring that the data is compliant and accurate each step of the way.

Yes, everyone has a compensation plan; the ones who have it in writing are usually more successful.

Even if your compensation plan is not formally structured and written, for employees the result is written on their pay.  Some think, maybe Excel spreadsheets for compensation are enough, though many companies fail to even ask this question of how to manage the greatest expense of most businesses, paying your people.

Many waste time, money, and lose employees because they don’t understand basic compensation.

The biggest waste is management time, and employees lost because of poor compensation plans and management. With growth, new compensation challenges arise for the company and the employees who want to be recognized and paid fairly for their contributions to that ongoing growth.

Why Compensation Management? 

Here are the 3 Keys:

  1. Engage employees and motivate them with a sound compensation plan, with compensation growing based on contributions and results generated for your company.
  2. Compensation stimulates employees to improve performance, with rewards based on compensation metrics and performance reviews to encourage positive activity.
  3. Done well, compensation helps define a career path for your best employees, while helping everyone understand the value they deliver to the company, ways to improve, and rewards for reaching goals.

In order to achieve this goal, organizations are moving from a world driven by many spreadsheets to a singular software that anyone, even those who don’t excel at Excel, can use easily. After 10 years of development in big enterprise companies, you can now own compensation software for a fraction of the original price.

A Simple Guide to Automate and Execute the “Right Compensation” Plan

What is the “right compensation” for your company?

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This guide targets 2 types of companies:

  1. Small businesses with less than 1000 employees who usually face the chaos and inaccuracy of multiple Excel spreadsheets that take too much time.
  1. Mid-Tier (1-10,000) and Enterprise companies with more than 10,000 employees, that have complex pay processes that must be able to adapt to their specific needs.

The right compensation means more than just being accurate and  precise; the right compensation will help recognize and engage employees, which helps them stay longer and lower the costs of recruiting, onboarding, and training new employees in a high churn market.

Smart, secure, and right,

Download PDF
Download PDF

the right compensation defined by your business rules.

  • Smart, because the compensation software automates your compensation plan in real time, doing the work of many spreadsheets. You save time and get accurate data!
  • Secure, protected servers for your data in the Cloud and tracked with essential Audit trails so you know what actions have been taken.  
  • Right – when your compensation plan takes advantage of the software, your people’s time is freed to do important tasks. It’s all in front of you, in one place.

Getting the right compensation means more than making sure your compensation is competitive, you need to have the information in front of the right people who can manage  budgets quickly and simply.

Visible Savings

(Replacing employees is increasingly costly today.)

    • Enterprise Budget Control: make sure you keep within budget. Increasing budget control minimizes risks that lead to random and unexpected cost overruns.
    • Overspending Hours and Underpaying Key Employees Who Leave:  many companies overspend on compensation, because their compensation plan and the tools to execute that plan are inflexible (especially Excel, which is still frequently used).
    • When errors come up, employees lose compensation trust and may leave.

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If managers are not given the proper compensation tools, training, and guidance – undermining the ability to stay within budget and make the right decision – errors happen.

Wasted time is also costly. A typical scenario is as follows:

  • Total Number of Managers: 500
  • Average Manager Salary: $70,000
  • Average Manager Hourly Salary: $33.65
  • Average hours saved per manager: 1.5
  • Total Cost Savings: $25,239

Then, of course, there’s the time spent by individuals in the HR department. How much time would be saved if there was no longer a need to consolidate spreadsheets, respond to manager requests for new spreadsheets because of changes in staff, etc.?

Before you begin, is your plan standard or complex compensation?

  • If you have complex pay processes – common in mid to larger companies – like long and short term incentives, stock, equity, and others- you may have a complex plan, that may ask for adaptations in compensation software.
  • Smaller companies with standard compensation – merit pay, bonuses, lump sum for example –  usually are a simple fit; if revenue is over $10 million, compensation may becomes a bit more complex as well.

 

DeathtoStock_Wired4

  1. Set Plan Guidelines

Enable compensation groups to set guidelines and business rules for multiple salary and incentive plans

  • Make it easy for everyone – from employees to managers to senior executives – to manage compensation in one place.
  • Set budgets for organizational groups; including business unit and location
  • Define recommendation approval steps and requirements
  • Define employee populations and assign reviewing managers
  1. Make Decisions
  • Provide managers with the tools to make better compensation decisions
  • Displays position to budget for manager’s total population or segments of the population
  • Encourage managers to follow specific recommendation guidelines for each employee
  • Report impact of budget allocation alternatives
  1. Report Results
  • Give compensation and management groups access to summary statistics
  • Highlight trends and differences in salary, incentive and stock
  • Build aggregated, analytical dashboards for executive reporting
  • Provides extensive options for filtering and summarizing the results at any time


compACTLogo3

Smart, Compensation Software

A. Get Consistent execution:

  • Excellent compensation plans often get lost in translation due to inefficient tools like excel.
  • Compensation management systems give your team the control to consistently apply the plan across the board.
  • This allows your employees and the organization to reap the full benefits of your compensation plan.

B. View accurate insights at any time:

  • Provides managers with the tools to make better compensation decisions
  • Displays position to budget for manager’s total population or segments of the population
  • Encourages managers to follow specific recommendation guidelines for each employee
  • Reports impact of budget allocation alternatives

You must be able to see where each and every manager is in relation to their allocated budget at any given time.

This insight allows you to react in a timely fashion as opposed to waiting till all the paper works rolls up to you.

C. Stay compliant, with an audit trail:

  • Built in audits and audit reports mean that you can trace any data throughout the process.
  • No more lengthy reconciliation process to prepare for audits.
  • In addition, customization capabilities means you can add additional reports that would allow you to be compliant with necessary regulations.

D. Improve engagement:

  • compACT data and experience show that automated compensation software improves employee engagement when compared to Excel – it’s easier to use and accurate.
  • Improved engagement translates to improved efficiency and better review processes, with up to date reporting that decreases errors.

E. Save time and money:

  • Accelerate the time required to complete the review process, saving time for your managers and compensation department.
  • Be sure controls are in the system ensure that managers stay within budget and help save the organization money from overspending on budget.

compACT simplifies compensation.

Know your budgets, your compensation, and retain your employees longer, while understanding and measuring the value they bring to your company.

All types of compensation. All in one place.

Set up a demo and see for yourself.

compACT manages a company’s Salary Review, Incentives, and Bonus Planning Process, automating compensation plans.

Every company has a unique compensation plan that employees managers, and executives rely on to deliver the right compensation to the right people at the right time.

Yahoo Performance Reviews and the “Compensation Costs” Game

As Yahoo’s business evolves into whatever it will become, the stories of Q.P.R. (quarterly performance reviews), stack rankings and mismanagement become the social fad of the day  (unless your BusinessInsider.com, with a reporting obsession with all things Yahoo and Marissa Mayer).

It’s also an example of Data making people feel small while a company got smaller – in one sense it’s the painful business that has to be done…still, is this the best we can do?

Performance Reviews and the Compensation Game at Yahoo

In a time where reviewing your performance reviews is common, the emerging Yahoo story also gives a glimpse into the links (and resulting dependencies) between performance and compensation – how we manage people and pay them without making them feel like data.

The performance reviews caused people to lose jobs and compensation; whether this was intentional or part of a layoff plan is for the courts to figure out.

From a compensation point of view, Yahoo’s scenario is about much more than the review system.

It’s about how we use data as businesses to manage, and pay, people the right way – without creating sinkholes that suck down confused and angry employees leaving or worst, who sometimes stay and begin playing “survival of the fittest” games.

After the review, people get paid. If it’s in your good interest to not help another employee, you don’t help. Not just because of the performance review, because of the compensation.

1. Compensation costs stack up.

Yahoo has many employees.  Stack rankings like Yahoo used are also called forced rankings – because they force the choice. Someone has to be at the one who misses, and it’s obvious for a company at Yahoo’s stage, at best that meant getting paid less for the employee.

People leave slowly. Stack ranking has managers place their employees into “buckets”: 10% in “greatly exceeds,” 25% in “exceeds,” 50% in “achieves,” 10% in “occasionally misses,” and 5% in “misses.”

This manager was left with choosing one of 2 good alternatives and sent this critical feedback from an invitation by Mayer to the company at a 2013 meeting:

“I was forced to give an employee an occasionally misses, [and] was very uncomfortable with it. Now I have to have a discussion about it when I have my QPR meetings. I feel so uncomfortable because in order to meet the bell curve, I have to tell the employee that they missed when I truly don’t believe it to be the case. I understand we want to weed out mis-hires/people not meeting their goals, but this practice is concerning. I don’t want to lose the person mentally. How do we justify?” October 2013 Yahoo Meeting

She never got an answer, or perhaps the lack of the answer is the answer. Lots of people got lost, mentally and financially, at Yahoo.


 

Related Article:

3 Insights from the Compensation Games –

How to stop a 21 percent net income loss from turning into a $1.6M Bonus

 


 

2. The performance reviews and the resulting compensation mix creates the culture here; we can all learn (and many have been there) when actions create a culture of negative interest – the zero sum game no business wants to create.

Did their performance review justify their compensation? In at least one case every time, the answer would be no.

If as alleged, data is used to reduce a company’s size without notifying employees of pending layoffs ahead of time as required by law, that’s a huge violation and one that is difficult to prove.

The fact is this data, based on stack rankings, caused people to lose their jobs or leave. That’s what it has done for years. It doesn’t have to, but it’s a good tool to do it.

Employees become competitors on the same team, and less a company. For a company at Yahoo’s stage, it wasn’t a question of people losing jobs, it was when. While brutal, the Q.P.R. did the weeding.

3. Which comes back to the issue, for a compensation software company like us.

Resolving the data issues between performance review data and compensation data are part of what we do every day.

What makes this important to virtually every business, big or small, are the negative effects of a poorly planned and executed performance review. It doesn’t have to contain the absolutes of the Yahoo story to cause pain.

Balancing the performance review and compensation involves more than data if you want to grow a company.

  • Yahoo’s situation was not good when Marissa Mayer came on, so some of these changes are part of a business evolving from a leader to either a smaller player, or many smaller parts, or being swallowed up and acquired. By design the Q.P.R. would have to make the company smaller; Yahoo is/was too big.
  • Part of Mayer’s job coming in was to reduce the workforce and the compensation costs; stack rankings come from an earlier age that culled by making absolute choices when needed.
  • Data did the culling, programmatic in a way. If you have to reduce your workforce by 5%, the easiest way to evaluate who? Stack rankings that give you the 5% who miss. The cold math and business vision is never clearer then when things get small – numbers are used to prove a point.

Imagine if we could create ways and compensation plans to model ways compensation data can grow a business, as easy as it is to use to make a business smaller?

That’s what a good compensation plan is all about, and part of what we’re working on here.

Avoid The Hidden Costs of Compensation: the Proven Compensation Management Checklist

 

Imagine your company is moving forward with the compensation software you recommend, and in the beginning it’s smooth sailing.

Your company recently invested in new software for handling payroll or compensation, and your department has just completed the months-long process of configuration, testing, and training.


Excerpt from:

How To Get the Right Compensation Management Solution by asking the Right 10 Questions


A month into deployment, the company’s business rules change in a way that will require major changes to your specifications document. That’s when you discover that the vendor can’t accommodate your changes.

One of the first questions you need to ask before engaging your company, and the vendor is, how much configuration will be needed?

To help you avoid being trapped by these and more questions, the experienced Kinixsys team has collaborated on the following checklist of questions, based on a number of common workflow situations that a good software system should be able to address.

Follow this checklist as you prepare to choose your compensation management software.

The Mini Compensation Management Checklist

 

  1. How often do your processes, business rules or work-flows change, and can you or the vendor reconfigure parts of the system to change with them?

This is probably the most critical question to ask up front. If you have situations  unique  to  your  organization,  you  want  a  product  that  can accommodate those special cases. The best systems will have the built-in flexibility to allow you as the application administrator to update things like eligibility requirements, guidelines, recommendation stages, and other critical settings. But at the very least, you will want to know if this is a “one size fits all” application that can’t be changed by either you or the vendor.

Avoid the “one size fits all” myth.

Compensation software is often customized; what will it cost, and how long?

 

  1. Is the vendor HR focused, or are they an IT company?

There are a lot of common errors that occur during the typical procedures that use spreadsheets and homegrown systems.  Many of the calculations are tricky and highly interdependent, so that a small error can have rippling effects on an entire employee group.  

  • Does the vendor understand the politics and nuances of compensation planning or are they focused only on the IT impact?
  • What  are their core competencies?
  • Which company(s) are good at communicating effectively with you from the start?

 

  1. Are you looking at a suite of products, or a point solution?

There’s something to be said for integration, but find out what they started with, and where their core competencies lie. Were they, for example, a Performance Management vendor who added a Compensation module after the  fact?  Did  they  build  the  suite  themselves,  or  acquire  other companies to build out their offerings? Even if all the capabilities appear to be there, there may still be lots of issues with how well the applications really fit together.

 

  1. What  happens when you hit a bump in the road?

What is the customer support process and turnaround time?

 

  • Is there a project manager assigned to your account who’s available by phone any time there’s a problem?
  • Or will you have to log a ticket and wait for a response?
  • Smaller vendors tend to be more available and responsive; the larger the vendor, the longer the queue for technical assistance.

 

    5. Will  it mine the data for executive reporting?

If management doesn’t get timely, accurate reports the system will not succeed.

Can it plug in to your payroll and benefits systems too?

 

Remember to:

> Ask good  questions up front,  so you don’t get any crashes or bumps along  the way.

Compensation is only one example of a software “solution” that creates a problem. Delays can happen in many situations, and that’s why it is always a good idea to know the potential areas of shortfall before you commit your company to a new automated compensation system.

> Make sure this system accommodates any changes you may need in the foreseeable  future?

First you have to know, from a solid compensation plan, what your future might look like including your current HR Tools and software, the data and performance. If you’re not sure about the answer to this question, plan on extra costs, which are common because few “off the rack” compensation management software solutions exist, and only a few adapt.

 

Download the complete White Paper here:

How To Get the Right Compensation Management Solution by asking the Right 10 Questions

compensation management checklist

 

 

Compensation management systems – How to Avoid the 3 Frequent Questions

What people least like about compensation management systems echoes the usual objections to software changes; that the new software doesn’t integrate with existing systems, is complex, and difficult to use.

Any change in software will cause these objections, out of habit and out of efficiency. Learning something new means stopping what you did and adapting systems. Plus, maybe the software is complex and inflexible, how do you identify what to look out for?

Complex Compensation

In a recent survey with HR.com, we  found what businesses like most and here, what they like least about compensation software.  These 3 issues continually arise throughout the survey:

  1. Why does my compensation management system not integrate with other HR systems?

This is a comment repeated again and again about compensation software in the survey, that it was not integrating with other HR systems. In an HR world driven by data, compensation software most of all must integrate with other systems. Maybe Legacy software driven from an industry that began over 10 years ago is to blame for the inability to adapt to new standards.

Sometimes a company updates its compensation plan, and resulting tech requirements, and the compensation software can’t adapt. When this happens, the company makes a request. But if not enough people make that request, the change won’t be made. Most often you can’t buy the change, because the end result will only benefit your company. Maybe what you ask for is not out of the ordinary, but if the software is not going to adapt, you’re stuck.

Which is why this complaint frequently arises, because when you’re stuck you are also in a long term, software commitment, wishing you knew this before you started. Yet integration with other systems is the foundation of software development in general; the flow and delivering of data to key stakeholders, while retaining security and privacy, are critical.

The challenge here, unlike with other tech decisions, is not necessarily driven by the other HR systems. Compensation software must be flexible to work with the variety of Suites and HR solutions available. While having it all under one roof sounds like a good idea, some compensation software in the Suite is not flexible enough for your needs.

Takeaway: Doing your diligence and asking the right questions about your HR systems and integration is key. Don’t assume and wait until later.

  1. Too Complex?  Ease of Use Rules

This word has become a code concept in compensation management systems; virtually every vendor discusses complex compensation, and how they simplify it. Yet the true power of simplicity lies in the compensation plan, and the software interface.

Is the compensation plan too complex, or is the software too complex? Some are not going to be happy with learning new software (see #3 below). Here’s 2 comments that show the problem:

  • Complexity and Too Complicated

“You never learn how to use all the tools, or you can’t tweak them to fit your needs.”

  • Over engineered for small companies

Small companies usually are moving from Excel or Access, or sometimes their own unique software that solved their problems. Compensation software with all the bells and whistles is too much for many small companies to digest.

Takeaway: Ease of use rules, which means researching the software and your compensation plan to make sure they fit together.

  1. Slow Implementation and Training?

  • Implementation process can be difficult
  • Processing Time for changes
  • Training and Change Management (in the beginning)

Onboarding software is a challenge we’ve written about before, and at the core of slow implementation. If your compensation management systems are not configurable, and requiresIT’s extensive time, prepare for a super slow process. Combine the resistance of change for people to learn new software, with overloading IT requests, and suddenly it all becomes more complex.

  • Training can be done in a few ways. The usual way is to do a focused intensive, with everyone in a room, then following up individually to help people progress. Instead of studying what the software can do, others set up situational training, where employees solve a problem while learning a specific function of the tool.
  • People learn more by doing than memorizing, which is why most training is weak (and it’s not just compensation software). Keep your employees focused on specific tasks they can achieve, instead of learning the many extras that may or may not be relevant.

Takeaway: Evaluate your compensation software on its ability to be configured and implemented quickly, within at least 90 days if possible. Understand that your comp plan, and company, will impact this if you do not manage the training and onboarding well.

Depending on your level of HR experience, choosing a compensation management system may seem simple at first glance. After all salary admin, bonus, plus long and short term incentives are built into most compensation software.

While the answers may not change, why do the same questions remain about compensation software?

Because as one of the 13 pieces of the HR Stack, compensation software is used to “validate and administer the pricing of job categories.” That means it touches many parts of the business that are changing much faster than they previously did. The way data is integrated, validated, and administered is what creates pay, based on a solid compensation plan. If any part of the preceding sentence is done lightly, errors and inefficiencies arise.

Compensation software can take this challenge to a new level; many companies rely on Excel, an old and once efficient habit that is waning in the face of new data standards concerning privacy and security of documents. Many employees, managers, and senior executives will interact with compensation software at some point, concerning what people are paid. They will have differing levels of tolerance for learning the new software, so be sure to not just encourage, but validate why compensation software makes their job easier when it’s running.

The best compensation software experience comes from a strong compensation plan; fitting the needs of that plan to the capabilities of compensation software is the best way to avoid the 3 questions.

3 Insights from the Compensation Games – How to stop a 21 percent net income loss from turning into a $1.6M Bonus

“Despite 20 years of trying, we have still failed to come up with an objective performance metric that can’t be gamed.”

Lynn Stout, Professor, Cornell Law School from this article that sparked a connection to compensation.

UPDATE: Part 2 of this Article Here, What they don’t like about compensation software.

Performance in business is like performance in any profession; people seek an edge. Today performance and compensation are deeply connected; how you measure performance and reward it is at the core of the new, Compensation Games, where competition meets employee rewards.

compensation game

 

Performance management and compensation software are intricately intertwined, what you do in one affects the other. Take the case of a CEO who earned a bonus while the company was experiencing a large quarterly income loss.

The stock price went down, and influenced by the stock repurchase, moved up enough to trigger the bonus.

If you set up a plan that rewards a performance increase in EPS (earnings per share), but allows a decrease in income at the same time, you likely have a flawed compensation plan. Performance in this case isn’t a review, it’s a measure that was overlooked.

In the compensation game that is being played today, a flawed plan often leads to much more than a momentary loss of revenue.

The game is not just played at billion dollar CEO levels, compensation gaming goes on in traditional companies, even smaller ones.

What a CEO  does is based on the plan; the important lesson here is how the gaming was set up by the company’s compensation plan that affects much more than executives.

While we aren’t here to recommend your EPS strategy, here’s a few insights from a compensation management perspective on how executive, and all employee levels, are involved in a new game linking compensation and performance:

 

  1. Wisely Set, and Regularly Evaluate, the Rules of Your Compensation Game

The compensation plan sets the ground rules; executives, managers, and even employees may game the system by focusing on outcomes that create short term, and long term, rewards.   What scenarios will arise from this plan – not just financial goals but all productivity measures?

In the CEO example above, where a 21 percent loss in income reduced the stock price, while a stock repurchase increased the price enough to trigger a CEO bonus, it’s not actually hard to understand why CEOs do it.

It’s in the rules, and it benefits the CEO and arguably the company, in terms of the value of its stock. Yet to reward a CEO for a poor performing year is the result of a compensation plan, not some negative CEO stereotype. Because the measure is based on stock price, not on income.

The solution here is usually a longer term, 5 or more years, for EPS share bonuses, and avoidance of short term perks that aren’t aligned with company income. Or at least weigh the value of the increased EPS to the reduction (long and short term) for income.

Compensation is just one part of the game; performance and its measures are the other.

  1. Blend compensation reviews with  performance reviews, which are also a source of gaming.

In some companies, performance reviews carry more influence. In others, merit pay influences reviews. Either way, these mutual influences create behaviors which become habits that should bring an individual, and long term company, reward.

Communication is a key factor in all reviews; poorly communicated compensation, and performance, reviews are lethal on morale. This is often an unknown part of the game for companies, who don’t know how this information is shared, and received.

Performance reviews are known for bias; compensation plans are often known for being rigid. Together these help paint a more accurate picture of where a company is going now and in the upcoming years, then simply looking backward to validate old activity.

While this shift will take time, the move from reactive compensation plans to real time compensation plans, with software that adapts, is already happening.

This is done by measuring whether the current employee actions, and the incentives driving those actions deliver the desired results. Checking to see if those measures stay valid is key; like a garden, a good business grows when it’s watched, and watered regularly.

The real question is, will your plan adapt in the face of

changing economic, executive activity, and/or market conditions?

  1. Compensation games happen in a competitive business environment. Build around them.

    Good gaming is ultimately good execution, where the rewards, and competitiveness within a company helps more benefit than poor gaming, which rewards a few and possibly de-incentivizes many employees along the way.

Good compensation is also good execution.

In a way, it’s the new HR Compensation Game – where social, performance, and compensation layers mesh, each one affects the other. These dependencies are key to understanding the long term success of your compensation plan.

It’s no longer about writing a plan down and do it, it’s about communicating this continually in a way that generates individual and business growth.

How to Get Everyone to Win Your Compensation Game

We’re not here to judge a business’s executive pay, or compensation games; management should create an atmosphere where every day, there is focus on the game at hand.

Today this combines more frequent performance reviews with compensation plans that balance short term recognition with the long term growth of the company, and its employees.

Finding the right compensation plan and software helps you play the game as well, because even if you don’t consider it, the compensation game is played every day in, and around, your company.

Because compensation is not only  about what you pay and reward people for, it’s about creating a business which is driven by compensation games, and people. The best companies are ones where people enjoy the game, and play it daily.

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What do you like best about the compensation software you use?

Compensation Management Software Survey with HR.com
Kinixsys and HR.com Survey

Choosing compensation software usually begins with a series of demos.  Yet too often this becomes note taking and months of follow up questions, and possible issues, that will undermine your business use case.  We want to help you prepare for that demo.

It’s not easy to know the right questions to ask, and compensation management software has come a long way since it’s early days more than a decade ago. What’s most important today depends on your company and your compensation plan.

In a recent survey conducted with HR.com (results available here), we included questions that help us understand what those using the software find most important, and most challenging, about compensation software today.

 

Let’s cover what companies like best about the compensation software they are using, with a few twists:

  • Flexibility – Big Data is influencing, even if it’s not fully understood or adopted by many companies yet. Data needs to flow to different parts of the company, with different views and responsibilities. Being flexible means the software must adapt to the requirements of the plan, but in practice many compensation management software companies are not flexible, and cannot customize – it’s a one size fits all scenario.

There are companies, like Kinixsys, who adapt and customize; being flexible is a key ingredient for compensation software. From all the responses, flexibility comes up again and again as a key “Like Best”.

Key Takeaway: Legacy software that is not updating to the new requirements may hinder your progress. Remember that compensation management software really began in the early part of this century; we’re in the midst of a shift in the way companies manage compensation, which drives customization requests.  What you expect may be a custom solution, so ask first.

  • Integration with market data – more and more salary data is being used to give companies, and employees, a better idea of what appropriate pay should be in the market. Then why do most companies feel they overpay, and many employees feel underpaid, when looking at what should be the same data?

Software that does integrate with market data easily, and accurately, is a big benefit for users.

Key Takeaway: Communication about compensation is becoming more and more important. If you don’t use market data, the employees can by using free services that don’t always give a true picture and will draw their own conclusions. We are all receiving more information than ever before about who gets paid what; it’s important that what shows up to all levels in the company communicates the right message.

That’s often best done in person, and more frequently (performance management and reviews are closely interlinked with the employee’s perception of the value of their compensation)

Key Takeaway:  The never ending rumors of Excel’s death are greatly exaggerated. Excel is more than a software, it’s familiar though not secure habit. It’s also the single word people chose to describe what they like best about compensation management software. Because it’s really a familiar world of Excel, compared to many, many varieties of compensation management software that everyone will need to learn.

Still at a certain point, even small companies will move beyond Excel. Or not. What it clearly shows is what we as an industry think the problem is, Excel, isn’t thought of as a problem by many in the industry. Yet change is inevitable here.

The Most Common, Compensation Software “Like Best”

  • Ease of Use

This is such a frequent, and general, description of what users like best. Software must be easy to use in the context of work, and often in comparison to Excel. Learning curves and frustration can undermine even the best compensation software.

Which is why it’s so important to understand the power of “ease of use”. That means software you can sit down to and learn without reading a book to do it.  Software that the company feels is easy to use; while no one loves a software change, in the end it’s the job of software to make your life easier.

That comes with interface, design, and integration to your business. Support teams who know what they are doing, and project managers who are HR Professionals, and adapt, instead of checklist driven integration with little flexibility.

Key Takeway: What does “ease of use” mean for your company? Ask a few key stakeholders and you’ll see the varying opinions of what’s easy and what’s not.

Beginning with that, you can make a choice by defining what’s best for your company, directly from the people who will use the software.

What we’re hearing are new questions driven partly by updating HR technology driven by Big Data – and the choice of how to adapt –  and partly by companies having to reconsider their old compensation plans in a world where salary data is freely distributed with varying levels of accuracy.

While the times are changing, so are the compensation plans, and the software needed to deliver the results. In the next article, we’re going to explore what companies don’t like about compensation software.

Let us know what you think on Twitter and LinkedIn.

 

3 Key Risks of Using Excel Spreadsheets Instead of Compensation Software

Why It’s Finally Time To Leave Excel Behind

One of the most time consuming and challenging aspects of compensation software is  managing the salary, bonus and stock recommendation processes.

Considering the potentially disastrous or embarrassing consequences of human error in building the spreadsheets, let’s look at some of the common risks and traps.  

This article is excerpted from a white paper (full version available here) which examines those Risks, their potential costs and consequences, and how they can most easily be avoided.

Risks of Excel Spredsheets

 

Risk # 1: Beware the Ripple Effect of Key Compensation Decisions

Compensation decision-making is a multi-faceted proposition,  with far-reaching impact on budgets and employee morale.

You can’t always predict the ripple effect of compensation decisions from a simple spreadsheet.

Managers and the analysts in the compensation department need summaries and audits to truly understand the consequences of these decisions, where hundreds of thousands (if not millions) of dollars are involved.

Managers may not know how to extract timely or relevant data from the spreadsheets because the tools they’re using don’t provide this information in an easy-to-understand format.

Confused or intimidated by not having a handle on the big picture, they either put off the task until the last minute, or rush through an ill-informed decision process.

The effect of these decisions ripples upwards as executives are left exposed to approving recommendations based on incomplete, misleading or outdated information.

Compensation planning software allows managers to see the immediate effect of their decisions on overall budget and performance distribution with instant, readable graphics.

 

Risk # 2:  Ever Changing, Always Confusing Templates

At a typical large company, compensation review time means everyone’s productivity slows down, with HR team members answering the same questions seemingly a hundred times over. Every change from last year, every new policy implementation, and every little tweak to the spreadsheet makes the template more confusing to everyone.

Never mind having to figure out salary changes; it’s hard enough for most managers just to figure out the review template without the Comp department’s help.

The better compensation software tools provide all participants with their own dashboard to enter and retrieve only the information they need, reducing confusion and repetitive or inappropriate queries. Instead of asking questions, they’re answering them. It’s like the difference between preparing your tax return with forms, versus answering interview questions on the latest edition of your tax prep software.

 

This simplified, need-to-know process allows compensation review to be completed with everyone singing from the same songbook, with no need for hand-holding by the HR team.

 

Risk # 3: Hurry Up & Wait (And Hope it’s Right When it Arrives)

Comp software helps keep salary review tasks from “inbox purgatory.”

The approval process for pay recommendations on spreadsheets can be cumbersome. As noted above, oftentimes managers will simply put off their pay recommendations because it’s a confusing task that falls in priority to their other management duties.

But that’s not the only reason why spreadsheet-based compensation planning can be such a slow proposition.

  • Compensation administration touches every part of the enterprise.
  • Changes to employees’ compensation must be transmitted not only to HR but to budgeting and other financial units; reports in various forms move in both directions through the chain of responsibility.
  • While a necessary evil, it extends the time needed to reach final decisions
  • Proper documentation of salary decisions prevents all sorts of problems, from equal pay challenges to budgetary controls and for HR to implement them.
  • Also, data integrity and process controls are at risk with spreadsheet-based planning because of the multiple touch points and possible stalls caused by “inbox purgatory.”

Compensation software allows timely data to speed it’s way faster through all the various company units, because it’s much easier for managers, executives and HR staff to enter and obtain information from its centralized data system.

The better software systems offer instant reports with flexible formatting capability to display data exactly the way it’s needed, for each department’s individual purposes.

 

This is part of the full white paper,  The 6 Key Risks of Using Excel Spreadsheets to Manage Compensation, available here.

The 8 Best Practices in Salary Surveys

Hate participating in Salary Surveys?

Here’s what survey companies hate about the responses they get.

  • Surveys are only as good as the quality of the data they compile.
  • We all dislike participating in them and, in some cases, that can affect the information reported, possibly skewing results.
  • We wondered if this is a problem, so we asked representatives from major survey companies what brings on their tension headaches.

    Here’s 8 Best Practices they shared with us:
  1. Know the landscape being surveyed.

Survey respondents should know their organization’s jobs well enough to do job matching. If you’re new to the organization, insist on getting last year’s input to the same survey so you have a starting point. If it wasn’t saved, the survey company can provide you a copy. Ask for help from a coworker who does know the organization and its jobs.

  1. Proof before sending.

This seems pretty basic, but always check the spreadsheet before transmitting. Survey companies report that they have had more than one situation where the spreadsheets have arrived empty or in crazy formats that anyone would have noticed if they had taken the time to look.

  1. Don’t match the jobs on titles alone.

An Accountant II in your organization may be a completely different job than the Accountant II described in the survey job description. If you’re responsible for matching the jobs, read the job description and only use the title as a guide. Be sure to match job levels as well (expert, intermediate, etc.).

  1. Read the part about what’s changed.

If the survey company has added or changed the jobs covered, you may find that you now have a better match than you had in the past, so don’t miss an opportunity to get better results.

  1. Make sure your data is usable.

The survey companies also want you to provide a unique identifier for each incumbent you report…and maintain that same identifier from year to year. Most of their clients will use the employee ID (not the Social Security Number!). Some don’t want the survey companies to hold even that information…so they make one up. Without that, the survey company can’t as easily audit your input or give you good information on year over year changes.

  1. Be consistent about FTE’s, even when reporting part time jobs.

Especially where salaries are part time but bonuses or incentives are not, provide a full time salary or an FTE factor so the survey company can correctly interpret your data.

  1. Don’t do a disappearing act.

When you leave your current job, remember to tell the survey company who’s taking over for you. This frequently overlooked task can wreak havoc on your replacement. When the survey company can’t find the right contact for reminders, everything will become a last minute rush.

  1. Don’t play hard to get.

You may get follow-up telephone queries from the survey companies. If they are any good at what they do, they’re not going to give up until they get what they need.

Common red flags that might prompt follow up calls include:

  • Job Match doesn’t make sense. For example, a “CEO” title matching an Accountant’s job description.
  • Salaries that exceed the maximum or are less than the minimum for their usual range.
  • Vast differences between the salaries in your organization vs. other respondents.
  • Wrong currencies reported for salaries.
  • Added or deleted columns on the spreadsheet. (Don’t do this; it really fouls up the processing).

 

TAKEAWAY LESSON

  • Be methodical. Check your figures. Make sure titles match descriptions.
  • Plan your time so you can complete the survey questionnaire with all the right data in the right places.
  • Your best measure of success is not receiving a single follow-up question from the survey vendor!

 

A Few Survey Firms to Start

Culpepper Surveys across a wide range of job categories in multiple industries, but with particular attention to technology, life sciences and healthcare.

Towers Watson Compensation, benefits and employment practices information for the US and many other global locations.

PayScale.com
Real-time salary reports based on job title, location, education, skills and experience.

Compensation.BLR.com Reliable compensation data. Up-to-date salary survey data – both nation-wide and state specific figures.

NACEWeb Salary Survey  National Association of Colleges and Employers