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Misconception 3: compensation software will present a difficult learning curve – Turning Woes into Wows Part 3

Turning Woes into Wows Part 3

 

Misconception #3: Companies believe that compensation software will present a difficult learning curve.

 

The reality: Modern compensation software is not designed to be used only by compensation experts or technology sophisticates. It’s intended for use by everyone in the organization—from HR professionals to senior leaders to front-line managers and even employees themselves. As a result, compensation software designers have made their products incredibly easy to learn and work with.

Users don’t have to learn how to collect and distribute crucial information, for instance, because software automates those processes, conveniently handling workflows and the chain of inputs and approvals. Most compensation software firms also offer ample formal training time to their clients but, in many cases, only “power users” take advantage of it.

 

The Organizational Benefits of Compensation Software

Although compensation software originated as a “big business” tool, it offers small and mid-sized companies significant benefits as well. According to Aberdeen, small businesses doubled their year-over-year revenue per FTE (8% versus 4%) after replacing rudimentary tools such as spreadsheets with more sophisticated tools such as software.

 

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Of course, the benefits to small and mid-sized organizations go well beyond increased revenues alone. Modern compensation software:

  • Helps attract and retain top talent. As a recent Forbes article stated, “the best way to attract and keep the best and brightest is to pay them well.” That’s true no matter what stage of their career your employees are in. Compensation software helps you quantify your talent’s value and understand the competitiveness of your wages so you can guard against competitors stealing away your best and brightest.

 

  • Helps maintain employee engagement. Aberdeen also found that organizations using modern compensation tools are 22% more likely to have highly engaged employees. Again, software keeps payroll mistakes from occurring and helps you to ensure that your compensation is competitive, which helps to maintain engagement levels.

 

  • Helps link pay to performance. Compensation software is especially helpful in giving managers the controls they need to integrate performance reviews into the compensation process—giving them and their employees a more comprehensive view of the factors that impact pay, incentives and the like. Software also automates processes that link pay to performance; a top performer’s excellent review, for example, will automatically trigger the software to issue a bonus reminder to the manager or even generate bonus check directly.

 

  • Ensures alignment between compensation decisions and organizational guidelines and goals. Controls built into the software ensure that managers’ recommendations are in line with the official budgets and guidelines set by the company. If the controls spot a red flag, mangers are informed and given directions to correct the specific issues.

 

  • Improves data accuracy. Companies using compensation tools such as software have half the error rate of those that do not and one-sixth the error rate in tracking actual time worked, according to the previously cited Aberdeen report. Even in small and mid-sized companies, multiple spreadsheets are used to manage compensation—and many different people work in and edit these spreadsheets, and they do this work separately. The process is fraught with potential bottlenecks and error points—all of which are greatly reduced when spreadsheets are replaced by a single software solution.

 

  • Provides greater data integrity and security. With everyone in your organization using one software tool, data accuracy isn’t the only improvement you’ll make. Data security and integrity will be improved as well.

 

  • Rather than having your compensation data spread across paper documents and the hard drives of many different managers and HR people—which increases your risk that private salary data and bonus information could make it into the hands of a competitor or a disgruntled employee—compensation software requires password-protected access from your company network. Additionally, compensation software creates an audit trail each time someone logs in, adds or changes information, makes a recommendation, etc. No spreadsheet or other tools offers this level of protection.

Taken together, all of these benefits add up to tremendous savings in time, effort, peace of mind and administrative costs. Even smaller companies can save between 10 and 20 hours of management time (equaling $10,000 to $20,000, depending on company’s specific size) while delivering more accurate compensation.

There’s one more important advantage to modern compensation software. Small companies often can’t anticipate their needs as they grow, so many modern software scales easily to keep pace with an organization’s expanding and increasingly complex compensation processes and decisions.

In fact, today’s best software solutions help with every aspect of compensation—from simple payroll administration … to budgeting and allocation … to planning and benchmarking … to analytics and reporting.

 

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Part 2. Turning Compensation Woes into Wows – HR Compensation Solutions are difficult to integrate?

Turning Compensation Woes into Wows

Misconception #2: Companies believe HR software solutions are difficult to integrate into their current systems and to customize.

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The reality: Modern compensation software integrates elegantly into a small or mid-sized company’s legacy HR systems and processes … and it’s highly customizable.

 

  • Integration—One of the greatest benefits of HR compensation software is its built-in capacity to interface with other HR tools and systems. The open architecture of many solutions makes integration quick and seamless and it facilitates the data transfer automation—thereby eliminating the need for manual data transfer often required by Excel-based systems.

 

  • Customization—Because every company’s compensation needs and plans are unique, the best software solutions have been designed for easy configuration changes and maximum flexibility. They can be quickly adapted to various bonus formulas and incentive programs, for example. And the “dashboards” can often be customized in a wide variety of ways. This enables users to have immediate access to the functions and tasks that are most important to them—and makes interacting with the software efficient and familiar.

Transform Compensation & Control Your Greatest Expense

Your compensation practices have a deep impact on your current employees and their overall engagement and satisfaction levels. They also affect your ability to engage new talent and remain competitive.

  • No matter how small or large your organization is, modern compensation software can give you significant advantages, especially if you’ve experienced issues with paying people accurately or on time … or failing to plan effectively for future compensation challenges … or not being able to give your managers the tools and data they need to make sound compensation decisions.
  • Compensation software is no longer a tool reserved for large enterprises. It’s now a basic business tool for companies of all sizes.
  • Modern software solutions transform compensation from a dreaded chore into a streamlined strategic activity—one that helps you manage talent more effectively and better control your largest cost of doing business all with less time and effort.

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Turning Compensation Woes into Wows – How Small and Mid-Sized Companies benefit from compensation solutions

Turning Compensation Woes into Wows

Part 1

How Small and Mid-Sized Companies benefit from Modern Compensation Solutions

A surprising number of small and mid-sized businesses continue to manage their compensation programs with rudimentary tools such as Excel spreadsheets. Some believe that modern compensation software is for large enterprises only. Others worry about the complexities and costs of shifting to software.

These misconceptions actually prevent companies from streamlining their compensation process…and from saving time, effort and dollars.

Compensation represents the single largest cost of doing business for most organizations. For small and mid-sized companies, in particular, compensation is more than a major cost. It’s one of the most burdensome administrative chores—time consuming, labor intensive and fraught with talent retention and litigation risks when oversights or mistakes occur.

Given all of this, you might think that legions of small and mid-sized companies are taking advantage of today’s powerful compensation software solutions. But the reality is many of these companies are still using spreadsheets and other rudimentary tools to manage their compensation needs.

To be fair, this problem isn’t reserved to smaller companies alone. A recent Aberdeen study found that roughly one-third of all the organizations it surveyed still use “ad-hoc processes, gut feel, or guesswork” to manage compensation.

The obvious question is … why?

Why do so many companies—especially small and mid-sized organizations—continue to use inferior tools rather than modern compensation software? They do it because of three key misconceptions:

  1. They believe spreadsheets are easier to use and more cost-effective than software solutions.
  1. They believe software solutions are difficult to integrate into their current systems and to customize.
  1. They believe software will present a difficult learning curve.

Let’s examine these misconceptions one by one.

Misconception #1: Employers believe spreadsheets are easier to use and more cost-effective than software solutions.

The reality: Spreadsheets are not easier to use than software. Like today’s best mobile apps, well-designed compensation software is highly intuitive, designed specifically to appeal to even the least experienced software/technology end user.

Most software solutions even resemble a basic spreadsheet design so they are immediately familiar. However, they’re also built upon powerful programming that connects data, automates certain functions and provides user-friendly data manipulation capabilities that simply can’t be built into a spreadsheet.

In addition, spreadsheets give rise to a whole host of problems that cause time, money and even talent to fly out the door. These problems include:

  • Consolidation time and effort—In most small and mid-sized companies, individuals who manage the compensation process actually work from more than one spreadsheet at a time. Eventually, these multiple spreadsheets have to be consolidated into a single file or database, which can take considerable time and effort. Compensation software eliminates this problem entirely, blending and updating everyone’s input automatically.
  • Version control issues—With multiple people working on one or more spreadsheets at the same time, there can be plenty of confusion about who has the most-up-to-date information. It’s far too easy for individuals to be working with old, inaccurate data or editing the wrong version of a file. The deeper these version control mistakes penetrate the compensation process, the more trouble they can cause and the longer they can take to correct. Compensation software provides everyone with a centralized database in which changes and updates are automatically reflected for all users at the same time. This centralized control is one of software’s greatest advantages over spreadsheets.
  • Macro control issues—Macros are created in spreadsheets to help automate repetitive processes and save time. Unfortunately, these macros are easily (and sometimes unknowingly) “broken” when spreadsheets are shared between various managers. One accidentally changed macro—especially after reviews have been completed—can mean hours of extra work by managers to fix the resulting problems. Compensation software, on the other hand, doesn’t use macros; it uses formulas that are built directly into the software itself—formulas that can be changed only by authorized individuals (as few or as many as desired). Plus, all changes to these formulas include an audit trail. If problems arise, you can easily identify the cause and fix it quickly.
  • Lack of security—There’s simply no way to keep managers from emailing copies of spreadsheets or copying them to flash drives and other devices—all of which puts your company’s confidential compensation information at risk. Compensation software has built-in role-based security and requires user-based authorization to prevent unauthorized individuals from seeing or accessing your data.

Your compensation practices have a deep impact on your current employees and their overall engagement and satisfaction levels. They also affect your ability to engage new talent and remain competitive.

  1. No matter how small or large your organization is, modern compensation software can give you significant advantages, especially if you’ve experienced issues with paying people accurately or on time … or failing to plan effectively for future compensation challenges … or not being able to give your managers the tools and data they need to make sound compensation decisions.

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2016 $90,000 Healthcare Case Study

“We use a rather cumbersome Excel Spreadsheet for compensation management within our 1,200+ employee organization.

Requiring excessive man-hours to maintain, this approach is error prone while constraining our ability to make appropriate salary/wage adjustments in a timely manner.

Because of these deficiencies, we perpetually run the risks of losing key employees to competitors. An example would be the loss of a higher-end employee for whom we were remiss in maintaining their salary at a competitive level.

The ultimate cost to us was the equivalent of their annual $90K+ salary when taking into account the recruitment of a replacement, training and the lag time for the new employee to get to full productivity”. CFO, California Hospital

 

 compACT Compensation ROI (Return on Investment) Analysis and Salary Increase Administration

The need for formalized base and variable pay management is imperative to a company’s operational efficiency, driving the measurements of Compensation ROI.

  • Automated Salary Increase administration provides a clear structure to compensation initiatives, ensuring validity and consistency in salary decisions.
  • Although there are many significant benefits to implementing software, we have outlined some cost saving areas to help facilitate your decision.

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Time Savings – Compensation Group

A compensation professional wears many hats: designing compensation programs, communicating philosophies, compliance, analysis, ongoing industry education, market research, just to name a few.  Administrative tasks are a necessary and critical part of the job but imagine what you could accomplish if you were required to spend less time on administration and more time utilizing your education, experience and creativity.

How much time does your compensation group spend on the administration of your annual salary review process? How long do you spend auditing data, creating spreadsheets, counseling Managers, analyzing results, training, generating reports and processing increases?  What if we could help you decrease that time by 75%?

Position Avg Salary* FTE Days Cost
Compensation Director/Manager $136,000 1 20 $10,563.11
Senior Compensation Analyst $84,000 1 30 $9,786.41
Compensation Analyst $57,000 1.5 30 $9,961.17
Trainer $75,000 2 5 $2,912.62
Total 85 $33,223.30
Time/Cost Savings using CompACT 63.75 $24,917.48
*National average from Salary.com, rounded

Manager Productivity

For Managers, the salary review process is often considered burdensome.  The time it takes managers to analyze data and enter recommendations for their team can be considerably shortened with the application.   You can communicate your compensation program structure and give your managers immediate access to budgets, guidelines and any historical employee data to facilitate analysis and recommendations.   Would your managers appreciate getting their recommendations done in half the time?

Not knowing the specific details for each organization, this calculation utilizes several assumptions for determining the cost, including:

  • Managers currently spend 6 hours on planning compensation rewards for their entire direct report population as well as reviewing subordinate manager recommendations
  • Average base salary per manager is $90,000
Manager Count Avg Salary* Hours spent per manager Cost
100 $90,000 6 $25,962
Time/Cost Savings using CompACT 3 $12,981

Retaining your Best Employees

Not maintaining competitive pay rates (internally and industry) are a costly liability for any organization.  The US Department of Labor’s Bureau of Labor Statistics estimates average costs to replace a worker in private industry at $13,996. How many employees left your company in the past year to pursue opportunities elsewhere and was their decision motivated by salary? How long did it take to replace and train the new hires? If you could decrease turnover conservatively by 2%, simply by ensuring equitable pay among your employees, it could total a significant cost savings.

# Employees Cost to replace employee Total Cost of Turnover
100 $13,996.00 $1,399,600
Cost Savings by reducing turnover 2% $27,992

 

Benefit Summary

The benefits include but are not limited to:

  • Time Saving on Administration
  • Facilitate Salary Administration for Managers
  • Accuracy/Equity in pay decisions to promote employee retention
  • Detailed Analysis and reporting capabilities
  • Software that can grow with your company

 

*Although this document was intended to provide you with a general idea of the potential cost savings associated with an implementation, we would be happy to work with you to create a more detailed ROI using your specific company information.  .

Compensation Impact Q: when do you need an integrated HR Suite?

About the Compensation Impact survey

compensation impact survey

The survey was completed by 204 HR professionals from a wide range of organizations. The distribution of company size is shown in Figure 4.

What do companies like (or dislike) about compensation software?

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If you are considering getting  new compensation software,  then it’s helpful to learn from the experiences of your peers.

Our survey asked a variety of open-ended questions  about  what companies  liked or didn’t like about  their compensation software.  The two main issues for small companies  were ease of use and flexibility; for mid-tier and enterprise  companies, integration was also an issue (see Figure 3).

 

Figure 3: Features  of compensation software most  frequently cited

 

 

Important  features

 

Small organizations

Mid-tier & enterprise organizations
 

Easy to use, learn, and implement

 

66%

 

50%

 

Flexible, configurable,  and comprehensive

 

26%

 

21%

 

Integration  with other systems

 

5%

 

25%

 

Cost

 

3%

 

4%

 

While no one mentioned global capability unprompted, when asked  if global capability mattered, 41% of companies with  over 1000 people listed  it as one  of the deciding factors.

 

Takeaways for small organizations

 

Takeaways for

mid-tier & enterprise organizations

 

1. When buying compensation software,  pay attention to ease of use, ease of training, and ease of implementation.

 

2. Be sure that you get the flexibility needed for your business needs now, and likely needs in the near future.

 

1. In addition to ease of use and flexibility, look closely at integration issues.

 

2. If you are a global firm, then the capability to handle global currencies will be a deciding factor in your choice.

When do you need an HR suite?

One perennial concern of HR leaders is whether the need to integrate different software packages  will create problems.  Overlooking integration issues can create headaches. On the other hand,  overemphasis  on buying pre-integrated modules can lead to headaches as well.

Pre-integrated but underpowered or inflexible modules often lead HR managers to leave the module unused  and instead go back to doing the work in Excel.

Each situation is different; for your specific situation, ask:

  • How much better is the standalone tool?
  • How difficult is integration in this case?

 

 

Takeaways for small organizations

 

Takeaways for

mid-tier & enterprise organizations

 

1. Integration  is usually not a top concern for small firms.

 

2. Compensation software  is usually Excel or an

in-house solution; people in the company may be reluctant  to switch.

 

3. Track the hours spent on compensation to determine the cost benefits for your organization.

 

1. Find another company that has done the same integration you are considering to learn exactly how easy or difficult it is.

 

2. Run a range of test scenarios on any software you intend to buy so that you don’t get stuck with a solution that is integrated, but can’t do the job.

 

3. Even though your company is big, getting  a suite to change  compensation software requires numerous requests  and is not likely.

 

The link to performance management and HR Suites

This survey focused on compensation software; however, it’s important to see compensation software through the lens of performance management.

Often the biggest issues in performance management arise from the compensation element, and if you don’t get this right it can be hard to get people to focus on goal setting or individual development.

Compensation Impact Takeaways for all organizations

1. One of the most important features of compensation software is that it should support making the right compensation decisions as part of the performance management process.

2. Get the compensation side of performance management sorted out first, and then
managers can concentrate on goal setting and development.

When do you need a compensation software upgrade?

Insights from the 2016 Compensation Impact Report


Three findings not to be missed

  1. Most companies with 1000 or more employees find that they need compensation software (53%).
  1. Most companies are happy with their compensation software (63%) but almost all companies  are happy if it’s cloud-based software  (80%)
  1. What matters most to companies that are experienced  with compensation software  is ease of use, ease of learning, and ease of implementation. (But it still must be flexible and configurable).

When do you need compensation software?

Does your company need compensation software? It depends on the size of the organization. Most smaller organizations (less than 1000 employees) get by without  it. However, once you cross the 1000 employee threshold,  most companies  have compensation software.

compsoftwareadoptoni

 

Takeaways for small organizations

 

Takeaways for

mid-tier & enterprise organizations

 

1. Most small organizations think that they don’t need compensation software.

 

2. Many who use Excel dislike it; now over a decade  old, compensation software  may become  more relevant in the near term.

 

3. However, if your compensation plans are complex, or revenue is over $10 million, then even a small company will benefit from specialized software.

 

1. Most mid-tier/enterprise organizations need compensation software,  yet some still cling to Excel or custom versions despite inaccuracies and lack of security.

 

2. If you don’t have software  yet, but are feeling the pressure to do better, create a roadmap for HR technology  investments  and ensure that compensation software  is included

on that roadmap.

 

3. Tying compensation to performance is a key trend going forward.

 

When do you need a compensation software upgrade?

One of the myths of compensation management is that you just have to live with inadequate tools. Fortunately, good,  affordable  tools now exist and a significant number  of companies  are now on the lookout for better  tools (see Figure 2).

orgslookingforbettertools

 

Takeaways for small organizations

 

Takeaways for

mid-tier & enterprise organizations

 

1. 19%  of small companies  are looking to upgrade their solutions.

 

2. Ask for demos of compensation software  so that you get a sense for the capabilities of these tools.

 

3. Factor in training to convert your company from Excel or in-house platform to one compensation software  in one place that everyone sees and works on.

 

1. 26%  of mid-tier/enterprise companies  are looking to upgrade their solutions.

 

2. If you find that your existing compensation software  is cumbersome, then you have probably outgrown it.

 

3. Many larger companies  buy compensation software  as part of a suite. Yet complex compensation plans can stretch the limits

of suite compensation software,  and changes adaptations are not likely to happen.

Key Takeaways – Compensation Software Upgrade

When a company reaches 1000 employees (and sometimes sooner than that), it usually needs specialized compensation software. At that point, using Excel or Access is not effective and in fact ends up costing the company money.

The two most important criteria for choosing compensation software are that it should be:

• Easy (i.e., easy to use, easy to learn, easy to implement)
• Functional (easy to manipulate data, flexible, and configurable)

The evidence from this survey suggests that companies that bought a cloud-based solution are very likely to be happy with that choice.

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.

 

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  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


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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.