BenefitsEngaged Workforce

Performance Management: Pay Pains: Tackling Compensation Planning

During economic uncertainty, HR organizations can still look to the market for intelligent tools and up-to-date data to help guide their efforts

by Andy Teng

One of the most challenging aspects of compensation planning these days is determining what exactly is a competitive wage for a particular job in these economic times. With joblessness rising across the country (the U.S. Labor Department reported a half-percent rise in the unemployment earlier this month), competition for talent is cooling.

But compensation planning has emerged as an internal struggle as well as an external effort to capture current market data. While gathering relevant compensation information is a perpetual challenge, lacking the necessary tools to get the job done is becoming less problematic as a cornucopia of online solutions and market data have become easily accessible in recent years. Still, many organizations continue to perform compensation planning using antiquated methods such as Excel spreadsheets.

“Systems are probably the biggest pain point. HR organizations are relying on homegrown systems or spreadsheets as they do their planning,” said Joseph Kilmartin, managing director with Waltham, MA-based Salary.com. “As organizations get larger, that’s not a good solution to rely on.”

Salary.com provides an extensive database of market wages for 3,600 jobs and outsourced research services to its clients. Using a SaaS platform, the company can track specialized positions as well as add new jobs to its database upon customer requests. Most importantly, the software allows data integration with existing platforms, which reduces the amount of manual intervention needed by users to integrate compensation information into their talent management systems. According to the company, it mainly serves customers with 5,000 to 50,000 employees.

Kilmartin explained that today’s HR organizations are increasingly relying on self-service tools, enabling managers to easily access data and perform compensation planning without a lot of assistance from HR specialists. Adopting new technology has been a boon to HR departments, as well, because self-service can reduce errors from manual input of data, offers permission-based access, and hastens the planning process. Most importantly, some systems are integrated into management suites to provide users a 360-degree view.

Not having the right tools typically can indicate that the organization has either failed to invest adequately or has invested poorly in its compensation planning processes. Kilmartin said that, in those cases, HR needs to campaign for greater executive and line manager support for investments.

One chronic problem plaguing many companies without adequate compensation and performance data is that managers and executives tend to overestimate the number of top performers in their organizations; in fact, he noted, on average they inflate the number by a factor of five. Ironically, rank-and-file employees seem to have a better comprehension of who really are the top performers within the organization than management.

Outsourcing Trends

It’s this lack of data and tools that has an increasing number of employers turning to outside assistance in their compensation planning efforts, said Kilmartin. They are seeking not only information on competitive compensation levels, but also industry best practices.

“The typical question they ask us is, ‘What are others organizations doing? How can we take a limited number of dollars and get the performance of the company higher?’” Kilmartin explained. “The main thing we hear is, ‘Can we do what we want to do with fewer resources?’”

He added that the fastest-growing component of Salary.com’s business is consulting, reflecting clients’ desire to not only just use data in their compensation and talent management programs, but also learn how to more efficiently leverage their resources. HR organizations have also matured beyond just accepting off-the-shelf software and turning to vendors for unique solutions that address a specific need they might have. For instance, Kilmartin added, some of his clients are asking for greater functionality around competency performance management.

By many indicators, he added, buyers are increasingly leaning toward integrated solutions rather than one-off, best-of-breed tools. According to Salary.com, more than 90 percent of its talent manager solutions customers buy the company’s entire suite of services, which includes compensation planning, modeling, performance review, talent development, and more. It’s not surprising, considering that a cornerstone of HRO—both point solutions and end-to-end—is the integrated technology and service bundle buyers get for their money.

As HR makes greater strides in its talent management efforts, it’s clear that developing an efficient and current compensation-planning framework will be a central pillar supporting employee satisfaction. Always challenging, these task grow even more difficult when the economy is in uncharted waters. However, with a plethora of tools on the market, HR professionals can expect plenty of support in these uncertain times.

Tags: Benefits, Engaged Workforce

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