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Dave Foxall Selecting the Right Compensation Management Software Solution

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 By Dave Foxall

How to Choose A Compensation Management Software

Compensation Management software may well have existed for some time now, but in recent years software vendors have moved beyond simple spreadsheet replacements and are now offering broader, more integrated compensation systems; solutions that have the potential to make a significant difference on an organization's performance achievements and bottom line. In fact, as HR software vendors continue to increase market share through mergers and acquisitions, one trend that has emerged is the targeting of specialized compensation management technology products to round out vendors' talent management suites.

Vendors aren't the only interested parties though, as adoption rates appear to be catching on to this "compensation" trend according to recent research from Ventana. Indeed, the company's 2011 report, Trends in Total Compensation Management, found that, "Currently only 17% of organizations have integrated compensation management software with talent management, but almost one-quarter (23%) plan to do so in the next year". While still low compared with other HCM applications, nevertheless, the fascination on the part of both vendors and consumers alike for compensation management software is growing. As such, whether your organization is considering this HCM software application as a stand-alone solution, or as part of a broader purchase, from a "best selection practices" perspective there are a number of specific factors to consider before committing to a purchase.

Compensation Management Software Factor #1: Functionality

Prior to selecting any compensation management system, it's paramount that an organization formulates its compensation strategy first; and only then source out software that has the functionality to support it. Although common features include pay-for-performance, incentive compensation, stock-based/deferred compensation, market comparisons, and even benefits administration/enrollment, the fact is that different systems excel in different areas. The Society for HR Management's 2011 report, Transforming HR Through Technology, warns against the assumptions inherent in the software design, citing "The mix and type of incentives must fit the organization's business model. When implementing a compensation system, make sure the vendor's product supports your firm's compensation strategy and is flexible enough to reflect the organization's values and approach to incentive compensation."

Compensation Management Software Factor #2: Wide integration

In isolation, compensation management software offers little more than accuracy (although that is a significant benefit), but when integrated into other business systems, the process and time savings increase almost exponentially. In Ventana's 2011 Total Compensation Management survey, 41% of respondents, "reported that they must use two to three systems to gain a complete view of compensation," making clear the inefficiencies that lie in not integrating systems. The survey found that organizations needed to integrate with payroll (69%), HRMS (56%) and accounting (51%) systems. The key question with any system is with what does it integrate, and how well.

Compensation Management Software Factor #3: Deployment

As with any HR or other business software in 2012, buyers have a choice of deployment options and although compensation management may be lagging behind areas such as talent management and learning management in SaaS (software-as-a-service) take up, it is definitely on the rise due to its easy configurability and rapid implementation times. The Ventana Research survey noted, "The traditional approach of managing [compensation software] on the company's own premises (44%) leads, but using on-demand systems (25%) and ones hosted by a third party (15%) are increasing in popularity." Cloud or SaaS compensation software systems can achieve benefits such as elimination of up front capital expenditures, accelerated time to value, on-demand scalability, predictable IT expenditures, enhanced business agility and even reduced total cost of ownership (TCO) over the life of the application.

Compensation Management Software Factor #4: Future capabilities

Software selection based on today's requirements makes for short-term gains; longer- term benefits are only leveraged when selection criteria incorporate the functionality of tomorrow. Compensation Management systems are part of the increasing trend for more flexible access using mobile devices and social media tools. The CedarCrestone 2011-12 HR Systems Survey found some systems were using crowd-sourced salary benchmarking and also "bringing social data onto a compensation dashboard to help the manager understand the value of actual employee contributions and engagement to support pay for contribution." Although the current adoption rate is only 2-3% of respondents, this is indicative of the future direction of compensation management. More widely adopted (albeit still only predicted to be 17% in 2012) was the use of mobile access by managers to view employee compensation or approve salary changes. Any compensation software choice should have the scope and scalability to match an organization's changing needs.

The Compensation Management Software Bottom Line

A 2010 Forrester report, HRM Solutions: Traditional Models Clash With Next-Generation Processes And Technology, noted, "Workforce stability will depend on growth, development, and compensation offerings. Companies face increasing retention issues as the job market recovers — the result of lean staffing, delayed replacements, and employee fatigue. As the job market evolves, innovation of performance, learning, and rewards programs will ensure that loyalty and employee satisfaction is retained or restored." In other words, an organization's compensation strategy (and consequent supporting software) is critical to survival in the current climate. The same report also assessed the value of the compensation software market at $835 million, with an annual growth rate of 7%. In a market so lucrative, there is a wide variety of vendor offerings to choose from; careful consideration of these four compensation-specific factors can help guide the best decision. End

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Software selection based on today's requirements makes for short-term gains; longer- term benefits are only leveraged when selection criteria incorporate the functionality of tomorrow.


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