The right technology is an investment in improving individual, team and organizational performance
Compensation in most organizations is the largest and most complex expense item on the corporate income statement. It would make sense then to assume that senior management would invest considerable resources, budget and deliberation on how this money is managed to achieve an appropriate return on investment (ROI). Wrong. Incentive compensation where achievement and payout are supposed to be tied to measurable objectives is one of the most poorly managed areas in the majority of companies.
Organizations spend millions of dollars on ERP technology to manage corporate financial and operational information, yet they continue to use spreadsheets to manage compensation programs.
In discussions with senior management teams regarding organizational performance improvement, the same issue always crops up as one of the top objectives: How do we accurately measure and align compensation and rewards to business goals and strategies? Processing transactional data to determine incentive payouts is only one part of the puzzle. Technology solutions need to address the alignment and linkage of several strategic elements, including plan design and target-setting (both by position and for each individual), plan management and tracking, communication, coaching and mentoring, and management reporting. Performing only the data processing and ignoring the strategic elements results in limited performance enhancement and poor financial management.
The growing importance of compensation technology
HR has made considerable strides towards becoming a strategic business partner. The need for this consultative resource to attract and retain exceptional talent will only increase as the population ages and qualified staff become scarce. Effective compensation programs will be one important component in the corporate value proposition to current and potential employees. A competency gap in most HR groups, however, is the knowledge and use of technology to manage compensation. Spreadsheets, the primary tool for managing compensation, are the cheap and easy way to get the job done. If people are really the important factor in organizational success, why not use technology to effectively manage compensation?
The multiple impacts of poor communication, feedback, measurement errors and overpayments are indicative of why current incentive approaches and management processes are not delivering the results expected by senior management. Further, the ROI of compensation technology is not measured in years, but rather in months or less. This doesn’t take into account the potential for better HR management decisions based upon superior, accurate and timely information.
What is compensation technology?
Compensation technology relates to applications that support the rewards, recognition and performance aspects of HR management. These are not HR information systems (HRIS) applications that house the “people data.”
Compensation technology applications are developed to:
•support the design of better compensation structures and incentive plans linked to the business goals and objectives. These plan designs add greater consistency to the treatment and performance expectations of similar roles within the company. Even in organizations where there are multiple divisions, the consistency of approach is important to maintain structures that are fair, manageable and defensible;
•provide feedback to employees on personal performance and development, contribution to team and organization goals, and the rewards earned;
•support the needs of managers at all levels to coach and mentor employees regarding their performance relative to the expectations of the organization. Technology allows the organization to structure programs with common performance measures as well as those specific to a particular role or division and to track and report on performance;
•analyze performance and reward information so management can refine programs and respond to changes in strategy, structure or the market.
Managing various variable plans
The phrase Enterprise Incentive Management (EIM) has been coined to differentiate them from more traditional HRIS applications. The most urgent compensation technology need is to address the variety of incentive plans that reside in organizations. Large, complex organizations can have hundreds of different incentive plans for a variety of levels and roles. They require greater management than traditional base pay systems in that they pay out variable amounts based upon variable performance and sometimes on different schedules.
There are critical business requirements that must be taken into account when looking at these applications. Compensation technologies must:
•integrate with other legacy systems to reduce repetitive manual entry that leads to data errors and under/overpayment;
•decrease the computation time required to determine payouts and increase the accuracy of the calculations;
•reduce the consolidation requirements (cut and paste spreadsheets) necessary when data come from a variety of sources or locations;
•provide easy, user-friendly access to allow employees to get the information that is important for them on performance or payouts;
•supply the organization with a central source to communicate directly with all employees about plans, performance and recognition;
•support the design and customization process for compensation plans to reduce the time spent as well as make approvals and assessments more open and consistent;
•have the flexibility to make changes to plan designs, plan assignment and organization structure as well as tracking and transaction accumulation (for individuals, teams, business units, industry verticals);
•ensure clarity of expectations and rewards for target levels of achievement.
Compensation technology applications are typically delivered either as server-based or hosted on application service provider (ASP) applications.
Server-based applications: The company purchases the application and it resides on the hardware of the company inside its systems environment. It is supported by the technical staff of the company or on contract to outside service providers. The software and all of the transactional information remain within the firewall of the company.
ASP-hosted solutions: In this scenario, the company never really invests in the software, but rather “rents” the application; the data and application itself reside on the hardware and systems environment of the vendor. The ASP provider supports it and provides all upgrades as part of its service fees. The transactional information is typically exported in a secure encrypted file to the host where it resides in its database along with the software.
The people edge
Compensation technology should not be viewed as an expense item, but rather as an investment in improving individual, team and organizational performance. Choose your compensation technology investment wisely. It is a very visible application, and it is likely you will only get one chance to do it right.
David Johnston is president of Sales Resource Group, a Toronto-based salesforce effectiveness consulting firm that specializes in sales and incentive compensation plan design. He can be reached at (905) 845-0192 or [email protected].
Who needs this technology?
Investing in compensation and performance technology
The right type of compensation technology application will be used by everyone in the organization and, if applied properly, its value will be evident to personnel at all levels. Conversely, the wrong application or the right application implemented incorrectly will not get used and will diminish the organization’s credibility with its people and reduce motivation. Compensation technology can be a serious contributor to setting and managing toward clear, measurable and achievable business goals.
The investment required need not be exorbitant, but will depend on the complexity of the plans and the degree of customization. The current mantra in compensation plan design is, “keep it simple.” Focus on those things that people can impact and limit it to no more than three elements in order to create focus.
Compensation technology will provide “information” to management rather than “data.” Compensation technology will add exponential value in certain situations, such as:
•Multi-divisional organizations that are moving to a shared services model for HR services. HR generalists provide direct support to the divisions and specialists like those in compensation reside in the corporate office and provide consultative support to all line groups. The shared services approach allows for centralized design, communication and administration support but with the capability to customize the program to meet the needs of the division.
•Organizations with 20 to more than 50 people on incentive or sales compensation plans. Those with fewer than 20 people would be able to justify the investment only if their environment has a high volume of transactions or the nature of the selling or sales channel is very complex to track and manage. Those with more than 50 participants will require some sort of compensation technology in the future, especially as sales channels fragment and products proliferate.
•Organizations that are distributed, where many people work either out of their homes or in satellite branches with limited management contact. The technology interface will become a critical communication spot for the employee to learn about changes in compensation, their performance and the performance of direct reports.
•Organizations looking to improve communication with staff and to provide coaching and mentoring support. Managers need easy access to up-to-date information to share and discuss with employees.
Organizations spend millions of dollars on ERP technology to manage corporate financial and operational information, yet they continue to use spreadsheets to manage compensation programs.
In discussions with senior management teams regarding organizational performance improvement, the same issue always crops up as one of the top objectives: How do we accurately measure and align compensation and rewards to business goals and strategies? Processing transactional data to determine incentive payouts is only one part of the puzzle. Technology solutions need to address the alignment and linkage of several strategic elements, including plan design and target-setting (both by position and for each individual), plan management and tracking, communication, coaching and mentoring, and management reporting. Performing only the data processing and ignoring the strategic elements results in limited performance enhancement and poor financial management.
The growing importance of compensation technology
HR has made considerable strides towards becoming a strategic business partner. The need for this consultative resource to attract and retain exceptional talent will only increase as the population ages and qualified staff become scarce. Effective compensation programs will be one important component in the corporate value proposition to current and potential employees. A competency gap in most HR groups, however, is the knowledge and use of technology to manage compensation. Spreadsheets, the primary tool for managing compensation, are the cheap and easy way to get the job done. If people are really the important factor in organizational success, why not use technology to effectively manage compensation?
The multiple impacts of poor communication, feedback, measurement errors and overpayments are indicative of why current incentive approaches and management processes are not delivering the results expected by senior management. Further, the ROI of compensation technology is not measured in years, but rather in months or less. This doesn’t take into account the potential for better HR management decisions based upon superior, accurate and timely information.
What is compensation technology?
Compensation technology relates to applications that support the rewards, recognition and performance aspects of HR management. These are not HR information systems (HRIS) applications that house the “people data.”
Compensation technology applications are developed to:
•support the design of better compensation structures and incentive plans linked to the business goals and objectives. These plan designs add greater consistency to the treatment and performance expectations of similar roles within the company. Even in organizations where there are multiple divisions, the consistency of approach is important to maintain structures that are fair, manageable and defensible;
•provide feedback to employees on personal performance and development, contribution to team and organization goals, and the rewards earned;
•support the needs of managers at all levels to coach and mentor employees regarding their performance relative to the expectations of the organization. Technology allows the organization to structure programs with common performance measures as well as those specific to a particular role or division and to track and report on performance;
•analyze performance and reward information so management can refine programs and respond to changes in strategy, structure or the market.
Managing various variable plans
The phrase Enterprise Incentive Management (EIM) has been coined to differentiate them from more traditional HRIS applications. The most urgent compensation technology need is to address the variety of incentive plans that reside in organizations. Large, complex organizations can have hundreds of different incentive plans for a variety of levels and roles. They require greater management than traditional base pay systems in that they pay out variable amounts based upon variable performance and sometimes on different schedules.
There are critical business requirements that must be taken into account when looking at these applications. Compensation technologies must:
•integrate with other legacy systems to reduce repetitive manual entry that leads to data errors and under/overpayment;
•decrease the computation time required to determine payouts and increase the accuracy of the calculations;
•reduce the consolidation requirements (cut and paste spreadsheets) necessary when data come from a variety of sources or locations;
•provide easy, user-friendly access to allow employees to get the information that is important for them on performance or payouts;
•supply the organization with a central source to communicate directly with all employees about plans, performance and recognition;
•support the design and customization process for compensation plans to reduce the time spent as well as make approvals and assessments more open and consistent;
•have the flexibility to make changes to plan designs, plan assignment and organization structure as well as tracking and transaction accumulation (for individuals, teams, business units, industry verticals);
•ensure clarity of expectations and rewards for target levels of achievement.
Compensation technology applications are typically delivered either as server-based or hosted on application service provider (ASP) applications.
Server-based applications: The company purchases the application and it resides on the hardware of the company inside its systems environment. It is supported by the technical staff of the company or on contract to outside service providers. The software and all of the transactional information remain within the firewall of the company.
ASP-hosted solutions: In this scenario, the company never really invests in the software, but rather “rents” the application; the data and application itself reside on the hardware and systems environment of the vendor. The ASP provider supports it and provides all upgrades as part of its service fees. The transactional information is typically exported in a secure encrypted file to the host where it resides in its database along with the software.
The people edge
Compensation technology should not be viewed as an expense item, but rather as an investment in improving individual, team and organizational performance. Choose your compensation technology investment wisely. It is a very visible application, and it is likely you will only get one chance to do it right.
David Johnston is president of Sales Resource Group, a Toronto-based salesforce effectiveness consulting firm that specializes in sales and incentive compensation plan design. He can be reached at (905) 845-0192 or [email protected].
Who needs this technology?
Investing in compensation and performance technology
The right type of compensation technology application will be used by everyone in the organization and, if applied properly, its value will be evident to personnel at all levels. Conversely, the wrong application or the right application implemented incorrectly will not get used and will diminish the organization’s credibility with its people and reduce motivation. Compensation technology can be a serious contributor to setting and managing toward clear, measurable and achievable business goals.
The investment required need not be exorbitant, but will depend on the complexity of the plans and the degree of customization. The current mantra in compensation plan design is, “keep it simple.” Focus on those things that people can impact and limit it to no more than three elements in order to create focus.
Compensation technology will provide “information” to management rather than “data.” Compensation technology will add exponential value in certain situations, such as:
•Multi-divisional organizations that are moving to a shared services model for HR services. HR generalists provide direct support to the divisions and specialists like those in compensation reside in the corporate office and provide consultative support to all line groups. The shared services approach allows for centralized design, communication and administration support but with the capability to customize the program to meet the needs of the division.
•Organizations with 20 to more than 50 people on incentive or sales compensation plans. Those with fewer than 20 people would be able to justify the investment only if their environment has a high volume of transactions or the nature of the selling or sales channel is very complex to track and manage. Those with more than 50 participants will require some sort of compensation technology in the future, especially as sales channels fragment and products proliferate.
•Organizations that are distributed, where many people work either out of their homes or in satellite branches with limited management contact. The technology interface will become a critical communication spot for the employee to learn about changes in compensation, their performance and the performance of direct reports.
•Organizations looking to improve communication with staff and to provide coaching and mentoring support. Managers need easy access to up-to-date information to share and discuss with employees.
