Five ways to improve compensation processes

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This article appeared in Human Resources Online

COMPENSATION PROCESSES

Global ? Organisations that constantly evaluate and improve their total compensation processes are more efficient at achieving their strategic workforce performance goals.

Research from Ventana Research has shown that 72% of companies indicated that deploying a total compensation management system was a top priority. A quarter of 145 executives surveyed across various industries found that their companies still have inconsistencies in executing compensation processes across the business departments and divisions. More than half lack confidence in their existing processes.

Respondents added that managing merit pay and base pay were still at the forefront of their issues. Alignment of pay and performance were listed second and third as areas for improvement.

Ventana offers five recommendations to improve compensation management processes.

Focus on outcomes for improving workforce performance.
Before an organisation can take action to realise the benefits of investment in total compensation management, HR and finance must ensure they agree on the direction. The benefit companies desire most is the ability to align their workforce to the business strategy and goals (52%), followed by efficiency of process (50%). Companies also want visibility into employee compensation, performance and succession related information (40%) and establish pay for documented performance (39%).

Replace outmoded technology to increase efficiency.
Although companies are looking to improve their processes, more than half of respondents are still using spreadsheets for compensation activities. Organisations should assess available applications to determine what may meet their needs cost effectively. Those that don’t are likely to fall behind in the race to acquire and retain talent.

Work to integrate appropriate sources and systems.
To drive improvement, it is necessary to integrate existing information sources with compensation and workforce performance or talent management systems. Integration will require the organisation focus not just on the usability and functionality of the applications but also the architecture needed to support integration to other internal systems, including the Human Management Resource System and spreadsheets, as well as external hosted or on-demand systems.

HR should explore ways to find a compensation system that can become the repository of the single view of compensation at every level, from individual to organisation. If separate dedicated compensation systems are needed, they should be designed to support integration into the system that provides the integrated view.

Understand what you really need.
Make sure you fully understand what your managers want and need from the compensation management so you can determine the type of application to use and the sources of data to draw upon. Individual compensation management software systems have relative strengths and weaknesses. Some are better at managing variable pay components while others have better capabilities for making critical decisions about workforce planning and strategy.

By clearly defining your business, user, information and technology requirements, you will be better equipped to evaluate how well providers of total compensation management applications will satisfy your particular needs.

Bear in mind it is possible that no single dedicated application will meet all of your needs. Perhaps bringing together specific capabilities from different systems will be required. If the latter, integration capability is essential.

Seek top management support.
Enlist sponsors from finance and senior executive management who will support the required investments and provide organisational leadership for the programme and its goals. With improved processes that work together efficiently, you can reduce friction in the workforce and focus on driving performance improvement.