Five Tips for Effective Compensation Planning - 19 Jan 2010

Five Tips for Effective Compensation Planning

  Steve Bonadio

Compensation planning systems automate and manage the planning,
modeling, budgeting, analysis and execution of enterprisewide
compensation plans.

Here are five tips to help talent managers get the most out of their investments.

1.    Simplify global compensation practices and processes.
Reducing the complexity of global compensation planning should be a top
priority for all organizations. Any company that has managed dozens or
more plans using spreadsheets or legacy systems can attest that the
complexity is staggering. Modern compensation planning solutions reduce
complexity and improve visibility by centralizing compensation data and
facilitating some of the more arduous tasks, such as rollups, exception
handling and approvals.

With a flexible compensation planning
system, organizations can readily reduce the total number of plans they
currently administer. Rather than administer 50 unique plans for a
global workforce, does the system enable organizations to define a base
number of plans (for example, one plan for each division or geography)
and then easily define unique policies (business rules) and variables
(payout components) for specific groups, business units or even
individuals? By reducing the total number of plans and leveraging a
compensation planning system that enables flexible definition and
change of plan elements as well as eligibility, the amount of resources
and time spent on compensation administration can be significantly
reduced.

2.    Gain fresh insight by improving decision support. Without
proper analytic and reporting tools, the ability for HR and business
leaders to make good compensation decisions is severely limited.
Therefore, modern compensation planning systems must provide numerous
standard out-of-box reports, and the tools should provide the ability
to easily create new reports, dashboards and metrics. Report navigation
should be streamlined to promote ease of use by nontechnical users, and
familiar tools such as Microsoft Excel should be available for ad hoc
analysis to enable managers to create graphs, comparisons and pivot
tables. Finally, detailed compensation statements should be easy to
produce.

3.    Link compensation to performance management and goals.
Best-in-class organizations focus on a performance-driven rewards
system that compensates individual contributors directly proportionate
to what they achieve and what they contribute to the bottom line. The
challenge lies in effectively aligning employee goals with
organizational objectives, automating performance management processes
and linking them with complex compensation policies or time-based
incentive plans at an enterprise level.

Merit-based pay
programs — especially those that relate to executives — have received
renewed interest lately due to emerging legislative and regulatory
compliance pressures stemming from the global financial system crisis.
Ideally, a single, centralized HR platform that natively connects all
of the required components for pay for performance — compensation
planning, incentive compensation and performance management and goals —
is required because it facilitates cross-functional reporting and
eliminates the technical challenge and cost of integrating and managing
disparate systems. 

 

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