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Businesses look to compensation management to pep up productivity

Moving from Excel to compensation management software can save time, money and reduce errors, but organizations need to consider business goals before buying in, industry observers say.

For Kate Adamentz Jenkins, an experienced compensation analyst at the University of Wisconsin Credit Union (UWCU), the annual salary administration period was a yearly headache. While UWCU was committed to implementing best practices in managing the performance of its employees, the company's compensation management system was slowing down the process.

"It was an elaborate series of spreadsheets," Jenkins said about the employee compensation process. "We had a pretty well-defined process in terms of the mechanics, in terms of our base increase and our pay for performance system was already in place, but how we administered increases was very manual."

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Managers would enter the salary changes for more than 370 employees on spreadsheets, and that data would be rolled up to Jenkins. Tweaks in the budget or further reviews could send the spreadsheets back down to managers for another iteration.

"It took me 120 hours to administer the process each year," Jenkins said. In addition, it was difficult to track spreadsheets that were being completed by the managers, and as the organization grew, chances for inaccuracies from a manual process increased as well, Jenkins said. As a result, UWCU decided to automate its salary administration with a compensation software system

UWCU is just one of a growing number of organizations seeking to automate its employee compensation systems. In the 2008 Ventana Research survey Trends in Total Compensation Management, more than 33% of business executives surveyed indicated that they used only spreadsheets for tracking and managing compensation. In a follow-up survey last year, that number had dropped to 25%. 

The benefits for automating are compelling. According to Gartner Inc. in Stamford, Conn., companies that implement automated compensation systems can expect to reduce processing time by 40%, administrative staff time by 50% and errors by 90%.

But before jumping into a purchase, human resources should consider what business goals the company is trying to accomplish, said Jim Holincheck, managing vice president at Gartner. 

Even just automating the process has value because of increased accuracy, he added, but other business goals can be achieved as well. Automation helps monitor salaries to ensure that there is a proper distribution of performance ratings, that managers are consistent in how they award compensation benefits or that there is enough differentiation of compensation.

Companies considering changing from spreadsheets to automation can buy software for specific tasks, such as one for compensation and one for performance appraisal, and link them together, or they can consider the holistic -- albeit more expensive -- approach of ERP. As an example, for a 500-employee company, an individual software program can be purchased for $50 per user per year. An ERP suite, which encompasses many more systems, may cost $1,000 to $4,000 a user. 

When to buy a compensation management system

When determining whether it is time to automate, Sean Conrad, senior product analyst at Halogen Software, suggests that companies consider the complexity of their current compensation program. A business with 100 employees, with just one basic compensation system and a small budget may not need to automate yet. A business with 100 employees but that also has various types of compensation, such as base pay, bonuses, stock options, benefits and training may require a software system. 

Another aspect to consider is whether the existing compensation program is a standalone or part of a talent management suite, integrating pay for performance. If so, goal management and performance appraisal should be tied to the plan, perhaps requiring a more technologically based system.

Integration is the direction more companies are going. In the 2011 Ventana study, 72% of participants said it was important to have a total compensation management system, instead of individual pieces. And although the system does not necessarily have to be completely automated, access to and integration of employee compensation history, performance, market data and salary ranges must be there in order for a compensation program to be most effective.

Jenkins, who began using the Halogen e-compensation and e-appraisal software in 2008, said the benefits of automating the UWCU salary process are clear. Not only has the process become more efficient, with more accountability and a lower chance for errors, it allows Jenkins 80 more hours of work time, time she now uses on higher value activities. Managers and employees benefit as well.

"Technology like this really supports high performance,” she said. “It has an infrastructure to help managers spend less time in the technical writing and more time coaching and developing their individuals."

Tom Sykes, product manager for compensation for software developer Peoplefluent, adds that the simplicity of administering pay through an automated system makes it easier to link salary changes with performance.

"When you can actually link somebody's year-end bonus directly to something like achievement of a goal that they had established in a performance management application, what that actually meant to them for that achievement -- the first year you can do that and actually communicate that, it's very impactful,” Sykes said. “The second year, it's highly motivational because there is a correlation."

And, while companies don't necessarily have to have software to do that, the bigger the company is, the more difficult it is to manually track and make the correlation, he added.

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