Compensation Planning, Execution and Analysis: The Right Tools Can Help

It occurred to me recently that software design and compensation plan design have a lot in common.  Both disciplines have four criteria for success: simplicity, consistency, trade-offs and communication. 

Overly complex software may be adopted by highly technical engineers but not by "normal" people who can’t program their own HDTV.  Software that fails to provide a consistent and predictable user experience will confuse and frustrate users.   Making the right trade-offs is an art form in itself because you never have time or budget to do everything.  And finally, communication is essential in order to give the user all the information needed to complete a task correctly.

When it comes to compensation planning:

• Simplicity is key because if your compensation policy is too difficult to understand, you will miss an opportunity to motivate and shape behavior.  Managers won’t understand how or what they should reward and employees won’t be able to see the connection between performance and rewards.

• Consistency is key because if you're inconsistent in your rewards practices, you won’t be able to shape workforce behaviors effectively - you’ll confuse some people while alienating others.  Note that consistency doesn’t mean people in Sri Lanka and New York get the same bonus, it means you have a set of location-appropriate guidelines that are followed consistently.

• Trade-offs are key because every company is different with a different culture, workforce and rewards budget.  Different types of rewards are appropriate for different worker groups.

• Communication is key to ensure managers understand the goals of the plan, help employees see the personal connection between performance and rewards, position rewards in the most positive light possible, and solicit feedback about the process.

Technology isn't a substitute for good planning or process but a well-designed compensation solution can facilitate compensation planning, execution and analysis in a number of ways.  For example:

• Defining plans, targets and rules – Assign plans and targets to employees based on consistent rules.
• Budgeting – Model different budget options and validate your compensation plan against the budget before you roll it out. 
• Goals – Align personal goals with organizational goals and/or corporate initiatives, which then impact individual rewards.
• Decision support – Give managers the information they need when making compensation decisions such as available budget, recommended compensation targets, performance ratings, compensation history and talent profiles for each employee.
• Global – Help managers allocate appropriate rewards to a global team, taking into account local targets and currency differences.
• Approvals – Define who should approve which rewards and any exception rules. 
• Communication – Deliver a comprehensive rewards statement to employees that highlights their performance and rewards.
• Analysis – Analyze pay distribution by performance to ensure that top performers were differentiated and solicit feedback from employees and managers about how to improve the process next time around.

The goal of a compensation review is for managers to think critically about their team’s performance, allocate appropriate rewards and communicate openly and honestly with employees about their performance.  Done well it’s a positive experience for the people who make your company successful.

So if your compensation review is a grueling exercise that disrupts normal business for six weeks it may be time to rethink your plan or your process.  Or it may be time to revisit your compensation solution.

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

Comments

[Dan Walter]

Laura,

Having worked extensively in both software and compensation I really like this posting. This approach may be a good way to get CEOs of tech firms to better understand the compensation process.

Thanks