True Cost of Manual Compensation Management

Tuesday, May 23, 2023

A recent study on pay practices from Josh Bersin identified “many pay practices are decades old, and as companies try to adapt they’re creating all sorts of inequities, inefficiencies, and frustrations among workers.” (https://jbc.joshbersin.com/why-do-corporate-pay-practices-feel-broken-because-they-are/) While there are certainly a number of compensation policies left over from bygone eras, we typically find even progressive companies struggle to execute on innovative pay strategies due to an overreliance on Excel and other disjointed solutions.

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Worksheet tools like Excel and Google Sheets continue to be the go-to solution for compensation teams due to their flexibility and capacity for complex calculations. Their ability to ingest data and perform detailed analyses has been an asset to many an analyst or consultant needing to generate analytics on the fly. Over time, worksheets were eventually stretched to become the default channel to calculate and collect compensation decisions from managers. As with many home-grown solutions, organizations simply outgrew them due to increasingly complex requirements.

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The average compensation cycle typically lasts somewhere between 10-12 weeks, and much of the time is spent making sure worksheets contain the cleanest and most recent employee data, performance ratings and/or goal attainment percentages have been loaded correctly, budgets are distributed accurately, eligibility rules are applied consistently, formulas are firing flawlessly, etc. Even if you have a dedicated employee or team of people supporting a compensation cycle in your organization, maintaining multiple versions of dozens or hundreds of worksheets throughout the organization can be an immense challenge and ultimately wastes time and money on administrative work versus more value-add consulting on the actual compensation decisions.

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Of course, the biggest risk isn’t incorrect compensation, it’s inequitable compensation. Headlines are filled with million dollar lawsuits from companies that didn’t keep a watchful eye over compensation decisions. And while a worksheet can help analyze the pay equity results of manager recommendations, it requires a lot of detailed review and research by your already distressed team.

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We see three primary benefits to selecting an automated compensation management solution:

• Efficiency - while there is always some level of configuration and testing to make sure eligibilities and calculations are running smoothly, an automated solution reduces the time spent on administration, because it acts as a centralized hub from which all downstream “worksheets” can be updated and distributed. Version control is greatly reduced, because any changes by any user are continuously tracked and available for audit.
• Effectiveness - the people supporting your compensation cycle can utilize the application as a tool and work alongside their business leaders to consult on decisions that support your organization’s pay philosophy instead of checking and rechecking administrative accuracy.
• Effort - there is a significantly less amount of time and energy needed to check and re-check for errors or compensation recommendations that exceed budgets or don’t align to performance results. Automated warnings help guide decision makers in real time as recommendations are made, and audits and detailed decision tracking helps Compensation/HR monitor and correct recommendations throughout the cycle.
• Equity - pay recommendations can be evaluated in real time before final approvals are secured and results are communicated to employees. Any potential decision that is inconsistent with your organization’s commitment to pay equity can be quickly identified and resolved.

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