Capitalizing on Technology to Enhance Compensation Planning

Is your annual compensation process a little like the story of Humpty Dumpty? Do you start with one large spreadsheet that you break into pieces for the different businesses/functions in your organization? When the process is nearing the end, can all the king’s horses and all the king’s men (i.e., you and your compensation team) put Humpty Dumpty (i.e., the master spreadsheet) together again? At any point during the compensation planning process (other than at the very end of the process, when you have finally put Humpty Dumpty together again), do you know exactly where the organization stands versus budgeted merit increases, incentives or LTI grants? Are you dreading the next compensation planning process because of the amount of time and effort involved? Does any of this sound familiar? If so, then it’s time to start thinking about a technology solution that can bring your compensation planning process out of spreadsheet mode and into the 21^st century.

A technology solution is not a silver bullet though and will only maximize effectiveness if the organization already has sound compensation and incentive programs in place, and are supported by clearly communicated policies and processes. Without these things, the technology solution may fall short of your expectations.

I have had the opportunity to lead several compensation administration solution implementations during my career. There are some common threads I can identify that made for a successful implementation. The common threads include the following:

1. Audit existing compensation programs
2. Conduct readiness assessment
3. Define system requirements
4. RFP process / assess and select vendor
5. Establish internal implementation team
6. Testing
7. Training
8. Debrief and refine process

Audit Existing Programs

Auditing your organization’s existing compensation and incentive programs, policies and controls will help determine if you have programs in place that will help achieve the organization’s strategy. It will also help identify consolidation opportunities within existing base salary, incentive and equity programs. Streamlining and simplifying your compensation programs, greatly reduces the complexity and timing when implementing a technology solution.

Conduct Readiness Assessment

Aside from having sound compensation and incentive programs, policies and controls, organizations should assess their readiness for self-service and utilization of compensation planning software. Is the organization currently using technology in other areas of HR administration already (i.e., benefits enrollment, performance management, 401(k) elections, etc.)? If so, then your organization may be ready to manage its compensation planning activities with a technology solution with little fanfare. However, just because your organization may not currently be using technology to support other HR programs and processes, does not mean you cannot take advantage of all the benefits that compensation software can offer. For example, your existing systems may be focused around the delivery of rewards which may require a different perspective from the review process.

Define System Requirements

When defining the system requirements, have a sense of the “must haves” from all parties involved in the compensation planning process. Conduct meetings and/or interviews, send a quick survey to understand the needs and wants of the end users. Know what the current pain points are for you, the compensation team, your managers, HR business partners, IT resources or anyone else involved in or supporting the compensation planning and communication process in your organization. Make sure that this is a broad information gathering process – for example, don’t assume your desktop IT environment is the same everywhere.

RFP Process / Assess & Select Vendor

Some organizations may utilize a formal RFP process. Other companies may create a short list of vendors based on the system requirements they have defined. Whatever route is chosen, the end result is the assessment and selection of a technology vendor. The chosen vendor should be able to deliver on the system requirements in a manner that meets your timing and budget. Getting references at this stage is critical – insist on talking to clients similar to your organization, but make sure you understand their HR environment as part of the reference as their pain points may not be the same as yours!

Establish Internal Implementation Team

While a technology partner will be a tremendous asset during implementation, relying solely on an outside resource can lead to potential issues and/or increased expenditures in the future. Be sure to identify internal “owners” for each stage of the process – testing, training, establishing program rules/guidelines, system administrators, launch communications, end of process communications, etc. For critical stages, in addition to the primary owners, you may also want to identify backups to proactively address when the primary owner is not available.

Testing

System testing is a must. Most reputable vendors will build acceptance testing into the project plan to ensure that all system features are working as expected. If you have multiple sites (and/or servers), be sure testing is conducted at each location to ensure similar results and speed of processing. Additionally, pressure test the system with multiple users at multiple locations to ensure you have proper server capacity to handle during peak times (of the day and during the planning process). Often, the day before compensation recommendations are due, a system can be overloaded with approval requests. During testing, attempt to mirror what the system will be experiencing right before a due date.

Training

Training should be targeted to the following audiences: managers, HR business partners, compensation team and system administrators. Each group will require a different level of training. Be sure your implementation plan includes training, and do not underestimate the importance or the amount of time required to complete all training initiatives. While the selected vendor will most likely provide the training materials, and may even conduct the training, it is important that an internal resource be equipped to provide training or you could incur additional fees for future training session. This is also a good opportunity to reinforce messages about your compensation policies, or guidelines on how awards should be made – treat it as a Training session for the whole Comp process rather than just the system. In my experience, since compensation planning typically only happens once per year, all managers (even those who have been previously trained) will need to be trained again.

Debrief and Refine

Conducting meetings with managers and other users at the completion of the planning cycle is a good practice whether you are using a software solution or not. The aim should be on continuous improvement. Identify any breakdown in process, communications and controls and address them before the next compensation planning cycle. If there have been issues, don’t be defensive but also don’t make improvement promises you aren’t certain you can keep.

To assess the effectiveness of your selected vendor/partner, create a scorecard for key items (i.e., communication effectiveness, errors, over spend, etc.). Then compare the scores of those key items from the prior compensation planning cycle versus the cycle managed with the software solution. Repeat this debriefing and refining process after each cycle to optimize the compensation planning process in your organization.

Final Thoughts

The above steps were followed with a company that I worked with earlier in my career. Interestingly, they implemented the software solution more than a dozen years ago, and are still using the same compensation administration software today. This is a testament not only to the technology partner and software solution that was selected, but also to the compensation programs, policies, and communication strategies that were in place at the time of implementation and maintained each year since. This supports the notion that if you do this process correctly, you may only have to do it once.

Are you ready to audit your compensation and incentive plans, policies, processes and controls? Would you like to assess your readiness to implement compensation administration software? Have you already made the decision to implement a compensation administration technology solution, but need assistance with the review and selection of a technology partner? Have you already selected a technology partner, but would like assistance developing a communication and implementation strategy? Contact Beacon HR Advisors and we can help you with any or all steps needed to successfully implement a compensation administration solution for your organization.

I’d love to hear your thoughts on this topic.  Please comment on LinkedIn at https://lnkd.in/d8sWyUE