Integration Q&A: Managing employee compensation using SAP HCM and SuccessFactors

SAP released Support Package 2 for the SAP and SuccessFactors Integration Add-On earlier this month. In this Q&A I chat with Paul Hopkins, Solution Owner for Compensation in SAP Solution Management, about the Compensation aspects of the integration support package.

Paul, you’re new to the blogging world here on SAP, so maybe you’d like to say a few things about yourself before we start talking about compensation in the hybrid model?

Sure. I’ve been with SAP for almost exactly 13 years, and I’ve spent most of that time in the product development organization. My current role is that of Solution Owner for the topic of compensation management, which means I look after the on-premise compensation product as well as the SuccessFactors compensation product, which as you know is the “go forward” solution for compensation…and the product that hit the leader category in this year’s reports from IDC and Ventana. I’ve been living and working in Germany for about 20 years now (I’m originally from the UK), having joined SAP from one of its largest pharmaceutical customers.

SAP recently announced the availability of the second support package for the SAP HCM and SuccessFactors Integration add-on. At a high-level, what’s this all about?

Firstly, I think it’s important to recognize that this support package is a very important milestone on the journey that we (SAP and SuccessFactors) have started together following the acquisition at the start of 2012. We have committed to all existing and future joint customers of SAP ERP HCM and SuccessFactors’ BizX suite to further develop the whole topic of integration. That is to take things to the next level of excellence. And whereas previous versions of the integration add-on looked at one-directional transfer of foundational data (employee and organizational data from SAP to SuccessFactors), this support package takes things forward in 2 main ways:

1. It offers integration not only at a data level, but also at a process level
2. We are now talking about bi-directional integration

From a content point of view, this integration package enables customers to extract data relevant to compensation planning processes from the SAP world (think about infotype 0008, for instance, with the base pay information of an employee) and transfer that to SuccessFactors to enable line managers to do their compensation planning (how can I make the best use of the compensation budget I have available to reward my employees?). At the end of the compensation planning cycle, of course, the decisions taken (John gets a 2% raise, Jane gets 3.5%, etc.) need to be transferred back to SAP ERP HCM to be available for future payroll runs. In addition to base salary, by the way, the package also covers other compensation elements supported by SuccessFactors compensation planning, such as bonus payments (think of infotype 0015) and lump-sum payments.

And from a technology point of view, this package augments the integration previously available, by offering Web-service based integration with SAP NetWeaver PI (on-premise) Middleware with corresponding ESR (Enterprise Services Repository) content.

So, we have data in SAP on-premise that is needed to support compensation planning done in the SuccessFactors. What kind of data are we talking about here?

The most obvious example is salary information of course. What do John and Jane currently earn? But there are other pieces of information that need to be known and are typically held in the on-premise world, things like:

• Frequency of payout (is John paid every month, i.e. 12 or 13 times a year? Is Jane an hourly-paid worker?)
• Classification of an employee with regards to his/her salary to SuccessFactors where this is mapped against the pay grade  to determine things like compensation ratio and range penetration, which are typically used in the compensation planning application and displayed to the manager for information
• The so-called “capacity utilization level” (maybe John decided to reduce to 80% working time this year) (note that this is currently a custom field on the SuccessFactors side)
• Currency of the salary in question (maybe John is paid in US dollars, whereas Jane lives and works in France and hence is paid in Euros)

Is the set of data the same in every case?

No, not at all. There is a tremendous amount of variation in the compensation processes that our customers run. I think that’s one of the main things we learned when talking to customers who were already running hybrid compensation processes. That is, there is no single way of doing things. And in addition to the data needed, there are some pretty fundamental differences with regards to the process itself. For example, how and where do you determine which of your employees are eligible for participation in compensation programs? Some customers base this decision on lots of data held with SAP ERP HCM, so whereas it would be technically possible to transfer all of this data to SuccessFactors and allow the eligibility decision to be taken there, it probably makes more sense in such cases to determine eligibility in SAP and just transfer the “yes or no” information to SuccessFactors. In other cases, the determination of eligibility is done exclusively on the SuccessFactors side.

With regards to “process variability”, another example might be who qualifies for participation in stock options programs? Or, is a merit increase decision based solely on performance ratings? Finally, what about new hires? Is there a “waiting period”? For example, if John started on 1^st  January then he is not eligible for participation in the 2013 compensation cycle, but will become eligible for adjustments in 2014.

So, there is no single “best practice” for compensation, meaning that we have to give customers the flexibility to extend the data extracted and to change to the standard extraction logic.

So in essence what we are doing is offering a lot of pre-thinking and field-mapping  with the standard extraction mechanisms and at the same time enabling the customer to extend this with custom logic.

OK, so relevant data is extracted from the SAP on-premise tables and transferred to SuccessFactors. Are we talking about flat-files here?

No, this is where this version of the integration package evolves from previous versions from a technology point of view.We’re talking about middleware-based integration, based for example on SAP NW PI (on-premise), which many SAP ERP HCM customers already use, for example for procurement processes).

What happens after the data has been transferred to SuccessFactors?

First of all, the data is made available for use in compensation planning of course. That is, it is included in the compensation planning forms that line managers work with. This is the normal SuccessFactors compensation planning process, which will work as it has been configured, depending on the customer’s specific process. So there is no change to the process itself, only to the source of the data, and this is coming in a standard way using SAP standard integration technology. So the compensation planning process itself runs through to completion and at the end of the compensation planning cycle, the compensation decisions are approved, typically by next higher-level managers and HR.

And after approval, the data is transferred back to SAP?

Yes, or rather the transfer of data is triggered from the SAP side. That is, it is a “pull” mechanism and not a push mechanism. Customers were very, very clear about this point: NO fully automated, real-time transfer of data from outside the HCM system into the payroll infotypes. So it’s up to the customer to decide when to pull the data into the SAP system. They might want to do this on a country-by-country basis, or per business unit, or whatever. And they have complete control over this process, which is important. After all, we are talking about one of the most sensitive pieces of information in a customer’s HR system. So we’re not forcing real-time integration where it’s not needed.

But back to the process. Yes, after the compensation decisions have been approved, the relevant information (new salary, bonus payouts, lump-sum payments) are then imported into the SAP ERP HCM system and then (in a separate step) activated. This activation triggers the update of the infotypes and the information is then available for follow-on processes such as payroll, production of Total Compensation Statements (if this is done in the SAP system) and so on.

What sort of customers did you work with that are already running a hybrid compensation scenario?

We worked with about 10 customers in total, with a fairly good mix in terms of size, industry and complexity of process. And while I’m sure that we have seen *all* types of hybrid compensation process yet, given the variation I mentioned earlier, I think we’ve got a very robust first package. The input of these customers have been tremendously valuable to us: they’ve been running hybrid compensation processes using SAP ERP HCM and SuccessFactors compensation management for a while now.

What are your future plans? Are we done with compensation integration or are there plans to extend it further?

During 2012 we have focused on the compensation process that is relevant to the majority of customers at the moment. This is typically annual merit increases, simple bonus payments, lump-sum payments, etc. During 2013 we will be evaluating the topic of variable pay, where compensation payouts are tied more clearly to a set of goals that may have different weightings, and different levels of achievement, with typically more complex calculations of bonus payouts.

We took the decision in the summer of this year to tackle Variable Pay later, based on the fact that there are currently few customers who are currently using the SuccessFactors Variable Pay module, and even fewer using or needing to use that in conjunction with SAP on-premise. So, the market need is much lower than for other types of compensation programs. But customers using or thinking of using SuccessFactors Variable Pay in a hybrid scenario are very welcome to get in touch with me to find out more about our plans, and discuss options for co-innovation in this area.

Final question: what do customers need to do to get the package and start benefitting from the hybrid compensation approach?

The package can be downloaded from the SAP Service Marketplace now, and of course includes an updated admin guide, also given the PI prerequisites that we’ve discussed. As for the first integration package, when customers are clear on their compensation process from a data and process point of view, the extraction logic may need to be extended. There’s a little bit of work to be done on the SuccessFactors side too, but overall we’re typically talking about a fairly low level of effort to get things up and running. And customers may be interested to know that we will be making a Rapid Deployment Solution corresponding to this integration package available, with planned availability being late November. This means that customers can also choose to wait until the Rapid Deployment Solution becomes available to ensure a fixed, low-cost implementation approach.

Thinking about this, though, I do have another question for you – most companies do their compensation planning in the first quarter of a year, so is this package coming a little bit late for most of them? Do you think any customers will be using this package next year, or will most of them wait until their 2014 compensation cycle?

You’re right: most companies do indeed do compensation planning early in the year, many of them in the first quarter. And so we scheduled release of the package to coincide with this: and there have already been a number of downloads of the package since we made it available on the SAP Service Marketplace on 5^th November. And at least one of the customers who downloaded it has already started implementation and intends to use it as the basis for their compensation cycle in early 2013. So I look forward to being able to blog about the first successful implementation of the compensation integration package in a few months’ time.

OK, Paul, thanks for these insights into what SAP and SuccessFactors have delivered with the second support package for the integration add-on. Let’s look forward to reading about customer experiences with this package.