Streamlining payroll for Wachovia’s multiple overseas satellite offices had myriad challenges that made for a daunting task. But a growing global outsourcing organization provided a unique and successful solution
by Russ Banham
Wachovia, one of the largest banking entities in the U.S., has a much smaller presence overseas, operating small units comprising of just a few people in 33 foreign countries. While the bank engages an outsourced domestic payroll solution from a single provider, until recently it relied on a hodgepodge of vendors in those international operations. In some countries where it had more than one location, several different vendors might have attended to payroll—not the most efficient way to manage the function. As Dan Habrat, Wachovia’s senior vice president of international human resources, puts it, “We had a lot of different family members living in the same neighborhood who weren’t talking together.”
It was a no brainer, then, for Wachovia to investigate consolidating its disparate overseas payroll services and outsourcing them to a single service provider. But as any global company that has looked into the idea knows, very few providers can even come close to rolling out payroll across the diverse geography in which many of these organizations operate. For Wachovia, it faced no smaller a challenge. In its search, it turned to traditional global players such as ADP, Ceridian, NorthgateArinso, and its domestic payroll vendor, only to learn that a match-up was unlikely. These major outsourcing providers presented solutions that seemed more appropriate for global organizations with much larger foreign operations—not a bank with, say, a sales and customer relations unit in Moscow managing the salaries and benefits of a handful of people, which was typical in Wachovia’s case.
That’s where the old maxim—necessity is the mother of invention—plays a role in this atypical outsourcing tale. With assistance from an outsourcing advisory firm, Wachovia found its match in Patersons Global HR and Payroll. The provider had gleaned a hole in the marketplace and developed a technology platform solving the dilemmas of companies such as Wachovia. “Whether you have four offices or 500 with a few people in each of them, the need from an HR perspective is essentially the same,” Habrat says. “Patersons had the service functions in many of the countries in which we were operating, and where they didn’t, they had the ability to go and get them.”
Charlotte, NC-based Wachovia, having been acquired by Wells Fargo, had grown significantly over the years through several mergers and acquisitions of its own. This was especially true overseas, where it undertook a parade of acquisitions. In many countries, however, the payroll vendor of the acquired financial firm remained in place after the transaction; long-term relationships are often hard to separate. The bank also had favored a decentralized payroll approach to its foreign operations, given the nuances of each country’s legal, tax, and social welfare rules and the prospect of new regulations and dynamic compensation trends.
The problem was that Wachovia found itself with a variety of different sales and customer outlets following disparate payroll protocols and using various vendors for other basic HR services ranging from benefits administration to background checks. “In some situations, we might have multiple offices in a country with multiple payroll providers because they all didn’t grow up at a single time or weren’t a single entity when the offices were opened,” Habrat explained. “We knew there were ways we could be doing this work more efficiently and effectively.”
The bank had several overarching objectives, chief among them the need to streamline payroll processes from the patchwork of vendors and their disparate solutions into a single provider with one payroll technology platform. Other priorities included consolidating input points into a single source for headcount data outside the U.S. and developing global payroll reporting capabilities. The bank also wanted to ensure that its single vendor would have comparable payroll expertise to that of the numerous providers previously serving its many locations. So the incoming payroll vendor would have to possess this knowledge on a country-by-country basis. And Wachovia had further hoped to gradually reduce costs while dramatically improving operational risk.
“If you have an office of four people in Central America and someone in that office running the payroll activities leaves, you’re essentially dead in the water and have to start all over again,” Habrat pointed out.
In the spring of 2007, Wachovia kicked off a global vendor review process. The bank’s HR professionals in dedicated teams in Hong Kong and the U.K. had already developed relationships with several service providers in their regions, and they leveraged those to consider what was available in the market. However, they hit a snag when it became apparent that many global outsourcing providers were more aligned with servicing the payrolls of organizations with much larger overseas operations. While Wachovia is a multinational firm, its foreign operations were a mile wide but an inch deep, with many locations comprised of three to four people.
“When we looked at the large outsourcing vendors, we found that our demographics of `too small a population in many countries’ made them unrealistic for us financially and not material enough for them to provide service less expensively,” said Habrat. “When you’re too small a fish in a big pond you don’t get a lot of attention.”
That’s when TPI, the Houston-based sourcing advisory firm that had assisted in the development of Wachovia’s domestic HRO engagement, was solicited to help in the search. The two firms had established an easy, trusting partnership. “They contacted us and said they had an international payroll issue,” recalled Debora Card, an associate partner. “They had 2,000 employees scattered across 33 countries with all these different payroll vendors and platforms and could not find a vendor that could provide a single-source solution. They had talked with their domestic service provider, which wasn’t interested. That made sense, as their needs didn’t really align with that provider’s model.”
Wachovia itself had a vendor in mind that it felt might fit the bill. TPI helped with due diligence on the provider and worked with its client to develop a request for quote (RFQ) that included a detailed statement of work addressing the services Wachovia sought. The RFQ also needed to tackle the bank’s request for information on the prospective vendor’s data security protocols and evidence of its financial stability. TPI dug into the RFQ to evaluate whether the providers met Wachovia’s needs and then joined the client on site visits. Through the evaluation, it soon became clear that the provider was still immature and failed to meet Wachovia’s stringent data security, legal compliance, and financial stability criteria. These were critical needs, given the highly regulated nature of financial services firms. As a result, Wachovia went back to the drawing board.
In the meantime, TPI undertook additional market research to identify other possible global payroll service providers. Market leaders such as ADP and NorthgateArinso had technology platforms geared to an SAP-based enterprise resource planning (ERP) system, which required a relatively large scale of operations on a country-by-country basis to be cost effective. Habrat said he felt that given Wachovia’s situation of having small employee populations in many countries, this type of solution was not economical for the bank.
TPI continued to hunt, even considering several global accounting firms. “They said they could build us such a solution, but we were hoping to find a provider that had already created it,” Card recalled.
A Unique Model
Enter Patersons. The vendor is the brainchild of Karen Paterson, who after receiving her MBA in 1996 formed a consulting practice and literally stumbled across the atypical requirements of many global organizations wanting to outsource international payroll only to hit a dead end.
“One of my first engagements was with Virgin Interactive Entertainment, a gaming company that had just been sold by Richard Branson to Viacom,” said Paterson, who is group CEO at the provider firm. “After doing some custom tax work for them, they expressed a need for international payroll outsourcing services. They had contacted ADP, Ceridian, and Ernst & Young—none of which could solve its problems. The business had grown from a couple kids in a shed to 2,800 employees across numerous countries. Like many of our clients, its ERP system couldn’t stretch down to meet the three people working for it in Japan. It had no idea what its headcount was and wasn’t sure its payroll was compliant. I looked at the requirements and thought deeply. The problem, I realized, was the underlying technology platform.”
A new business was born in these musings. With assistance from John Hollis, a video gaming company pioneer—his development of Quicksilver in the 1980s while he was in his early twenties still has fans today—Paterson began hammering together a new payroll outsourcing platform. The two made a great team: Hollis had the technical programming expertise; he was a veritable master of Java Enterprise Edition or Java EE, the platform for server programming in the Java programming language. And Paterson had a deep understanding of the business problem at hand. The two also boasted overlapping skill sets—Paterson herself had some understanding of Java EE, and Hollis, who is now the company’s chief technology officer, also understood the business world having sold Quicksilver for a few million dollars. He also was primed for a challenge. Paterson equates their relationship to Microsoft’s Bill Gates and Steve Ballmer, the company’s co-founder and its current CEO.
Together, they cobbled together 1.8 million lines of code, which Paterson decided was the starting point to begin soliciting customers. “There’s a million and one ways to get this platform wrong,” she said. “I didn’t want to go to market until I was sure we had it built absolutely right.”
The company launched in 1996 in Salisbury, England. Today, it provides its on-demand payroll and HR system to some of the world’s largest organizations, covering a breadth of locations as diverse as Iran, the Cook Islands, Vanatu, and Mongolia. Its unique software-as-a-service platform delivers outsourced payroll services on a multi-lingual, multi-currency basis via the Internet in more than 160 countries worldwide, leveraging global service centers in the U.S., U.K., Singapore, and France.
“Our advanced technology means we can deliver HR and payroll to any country across the globe no matter how many employees there are in each country,” Paterson said. “This can be as diverse as 120,000 in America or two employees in Kazakstan, three in Turkey, and five in Russia.”
Field of Dreams
It was exactly the kind of solution Wachovia looked for. “Based on the criteria for the solution Wachovia wanted, we were able to identify that Patersons was the best match,” Card said. “They could provide the service requested, and after our due diligence we were able to ensure they had the data security and legal compliance required and had demonstrated financial stability. In fact, they were growing their business quite remarkably.”
Habrat said he was impressed by the vendor’s scope and breadth. “They had these various global service centers but also the ability to provide a single relationship manager in each of the countries where we operate,” he said. “And their pricing model was built for the ‘small population, many countries’ business proposition. We didn’t have to be a monolithic volume provider in a couple geographies to make it economical for them to service us.”
In short, Patersons met all the challenges that other prospective providers could not. It could provide a single source of data on non-U.S. payroll; offer service experts who understood indigenous compensation and benefit compliance issues, regulatory trends and best practices; and meet the data security, legal compliance, and financial stability thresholds required. Additionally, via a partnership with software vendor Cognos, Patersons made available sophisticated data modeling and reporting capabilities.
There were other upsides, as well. “If we want to move to a different benefits practice that might leverage online functionalities or provide more flexibility to employee users, their technical foundation offers the ability to be a springboard to that,” Habrat said. In certain countries Wachovia had wanted to effect such new changes but was uncomfortable doing so because the underlying technology was deemed inefficient to take on that risk.
At present, the outsourced payroll solution is being phased in one country at a time, with the system implemented so far in the U.K., Canada, and Hong Kong, which came online in March. This measured approach was predicated in part on implementing the solution where Wachovia felt was most needed right away. “These locations were where we had the greatest pain or wanted to pursue the greatest gain,” Habrat said. The graduated strategy also assisted the bank to learn as it went along, building muscle in one region before bringing it to others.
A phased approach further gave the partners time to align their cultures and information technology perspectives. Upon reflection, Habrat said it was a wise choice, given the complexities of the task at hand and the “potential pitfalls of trans-nationalizing international payrolls,” he elaborated. “A good example is Patersons’ development of the information security controls that an organization like ours requires. They’re young in the financial institutions space, and as a result of that we’ve picked them up a couple notches in terms of the rigor around their security system.”
As for the next locations to be phased in, that will have to wait until Wachovia’s merger with Wells Fargo settles. At this juncture, the timetable for bringing the remaining countries online is unclear due to the integration activities that will likely occur between the two banks. And it’s unclear if Patersons will provide any additional HR services post merger.
Although Habrat said he is pleased with the rollout so far, Wachovia’s return on investment is too soon to call. He is comforted by the fact that the contract has in place rigorous service level agreements addressing customary metrics such as on-time payroll delivery and “expeditious, seamless employee experience.” Reporting of some cost savings is expected to come soon, however.
Habrat noted that in Canada, where Wachovia has fully turned payroll processing over to Patersons, the bank no longer needs to employ dedicated payroll managers. This contrasts with its larger operation in the U.K., where it will continue to employ dedicated payroll managers.
Habrat is especially eager to delve into the payroll data that will be unleashed by Patersons’ single-source platform. “We will finally have better data to improve our decision making,” he said. “Today, if you asked me how we pay people overseas, I really can’t give you an answer. Obviously, that hampers our decision making.”
One of the ancillary benefits anticipated from the payroll reports is the ability to display data in local currencies, which allows managers to discuss trends in relation to pay practices within these currencies. “When you have that data in your U.S. system alone, it is typically in U.S. dollars, which makes it stale the minute you look at it because of the fluctuating foreign exchange rate,” Habrat explained. “It therefore becomes a flawed approach for U.S. managers making decisions for their employee populations outside the U.S. Hong Kong, for example, is very different insofar as pay practices like salary increase amounts or types of compensation.”
He said the data will make it easier for his team to sit down with senior managers and, from an HR perspective, “have a good conversation about the cost of opening or closing business in a region, the speed of timing in this regard, or just the general maintenance of that business. Whenever HR can bring competence to the table when it is desired or demanded, it’s a real value proposition.”