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Dave Foxall The Quick Guide to Self-Service Compensation Management Software

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 By Dave Foxall

Keeping Managers in the Compensation Software Loop

Compensation management software systems can automate virtually the entire compensation process, including: planning and modelling, calculation of pay-for-performance (P4P), allocation of pay and bonuses, tracking of individual histories and strategic reporting. By pushing this process one step further, and incorporating a high level of manager self-service functionality, the compensation management software system can combine all those automation benefits while involving all levels of management in pay decisions. For example, in a 2011 case study from the Society of HR Management (SHRM), one organization completed more than 10K individual reward distributions within a 24-hour period by managers in 65 countries; enabling the company to implement a standardized global compensation plan via self-service. While this is a process that can be similarly duplicated, it should be noted that in order to leverage benefits on this scale, there are a number of issues to take into account when an organization is implementing the self-service features of its compensation management software.

Self-Service Compensation Software Issue #1: Features

As evidence by other HR software applications, clearly self-service use is on the rise; however, as with any technology it can be easy to fall into the "feature trap"; choosing the system with the most options rather than the right options. According to a recent survey from Towers Watson, 2011-12 New Horizons - No Boundaries, the two most common self-service features for compensation management applications were: planning annual merit/base salary (77% either already in place or planned for 2012) and planning annual incentives (63%). Yet managers also often have input on promotion pay, lump sum adjustments, stock-based and deferred compensations, market comparisons and a variety of reporting and analytic options—areas which are distinctly absent from many compensation self-service software feature sets. The key is to identify the features appropriate for the organizations management to achieve current business goals while also factoring in the necessary evolution or scalability for future needs and growth.

Self-Service Compensation Software Issue #2: Total Compensation

Rather than a simplistic focus on base pay and benefits, more and more organizations are broadening compensation management software system functionalities; taking a cue from the traditional sales incentive model with commissions and P4P. Total compensation management introduces a results/performance-based element and seeks to include all of the awards and rewards in a single strategic package. The Aberdeen Group report, Total Compensation Management, suggests that, "The well-constructed program tracks all of these elements against performance, retention and budget metrics in order to align the right compensation to the right people for the right reasons". Compensation management software with self-service capabilities provides managers with decision-making input while allowing the compensation application (usually as part of a wider performance and talent management integrated suite) to shoulder the administrative burden of maintaining a complex, multi-stranded system of pay and incentives.

Self-Service Compensation Software Issue #3: Transparency

Human nature dictates that any increase in automation generates a certain degree of caution or distrust which must be dispelled through change management and communication. Indeed, as the aforementioned SHRM report notes, "one of the most important aspects of any pay or compensation [software] system is the employees' perception of the fairness of [that] system". Further, recent Ventana benchmarking research on total compensation management applications found that a common problem was the perceived inconsistency in approach across departments and divisions within organizations. Open communication to employees on the nature of this HR software system's self-service functionality can act as reassurance on this point; not least of which because it underlines the existence of checks and balances to the automation and human input to individual decisions.

Self-Service Compensation Software Issue #4: Judgment

Following on from issue #3, manager input to compensation is about more than simple reassurance. As the SHRM report states, "Compensation is as much art as science". Compensation management software is there to support management decisions, to provide the fullest data picture available, and to enable the best (and most equitable) outcome; but the final compensation judgement is management's. Even automated reward allocations rely on preconfigured rules and, as such, it's essential that organizations understand those rules prior to compensation management system integration.

Likewise, managers are in the unique position to leverage additional factors not captured by an off-the-shelf compensation software system. For instance, for less experienced managers, a comprehensive compensation management system can provide alerts and on-screen coaching tips to ensure that the key factors are considered when making reward decisions. But, in the case of a valued employee at risk of leaving for a competitor, the manager may decide to allocate benefits beyond the system's recommendations in order to retain that employee.

Self-Service Compensation Management Software – The Bottom Line

Recent Aberdeen Group research found that "Best-in-Class organizations are implementing self-service for managers – at all levels – to allow them to access the data and generate the reports they need to make the necessary decisions to meet short term and long term business objectives". By enabling (and even prompting) appropriate manager input for compensation management, the appropriate level of self-service functionality can provide the perfect blend of automation and measured decision-making—supporting an organization's longer term compensation management strategy and fostering manager engagement. End

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Compensation management software with self-service capabilities provides managers with decision-making input while allowing the compensation application (usually as part of a wider performance and talent management integrated suite) to shoulder the administrative burden of maintaining a complex, multi-stranded system of pay and incentives.


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