A Corporate Compensation Strategy Simplified –‘E Pluribus Unum’
As the As the unofficial motto of the United States of America, and one of the phrases appearing on US coins and currency, ‘E Pluribus Unum’, or ‘‘Out of many, one’, summarizes the transformation of a rag-tag group of fragmented, dysfunctional colonies into a single, unified new country. Just as subsequent history showed that the United States of America was indeed a stronger union than the sum of its collective parts, ‘E Pluribus Unum’ can also serve as a roadmap to a more efficient, cost-effective way of managing employee total compensation in today’s corporate environment.
The Reality of ‘Many’ – A Fragmented Corporate Compensation Strategy
· As recently as a year ago, a survey by Ventana Research titled “Total compensation Management 2012’, found that only 13% of respondents were confident that their organization managed its compensation processes effectively.
· Lack of integrated processes was cited as a key reason for this inefficiency.
The Problems of ‘Many’ – Inefficient, Slower and Higher Cost
How does a company reach the point where their compensation process is there an inefficient mash-up of independent pay processes which are cumbersome to administer, costly to maintain, and inefficient to update? Some key contributing factors are:
· Salary increases, wage adjustments, bonuses and stock incentives use different planning, budgeting and disbursement tools (spreadsheets, home-grown programs, stand-alone compensation systems), but much of the work remains a manual process
· Salary increases, wage adjustments, bonuses and stock incentives are planned and paid in separate cycles or timeframes
· Variations within the same type of compensation plan vary based on employee population characteristics such as whether the employee is wage or salaried, full or part time, union or non-union, regular, management or officer, for example.
To address variations in population, compensation type, and exceptions to pay practices, companies create a ‘patchwork’ of plans that require more and more effort to utilize and maintain. In today’s corporate environment, where technology changes, skilled employee shortages, and global competition drive the need for frequent and fast transformation of compensation strategies in order to attract and retain the best talent, this situation is less than ideal. As stated by Jeanie Adkins. Compensation Partner at Mercer Corporation, in July of 2013: ‘Employers recognize that their greatest challenge is to retain top performers and avoid post-recessionary flight of these valuable assets’.
One SAP Customer’s Problem of ‘Many’
One SAP customer, a US-based airline, found itself spending more and more administrative and management time and resources in planning and executing pay processes. Instead of getting more efficient each year, the business processes were consuming more time and headcount with no
improvement in employee satisfaction with overall company pay practices. SAP performed a business assessment of their total compensation approach, and found that the large number of pay planning/administration tools and the many manual processing steps were the key culprits. The assessment resulted in these key findings:
· Wage plans for 12 different unions required frequent changes due to union regulations
· Different salary plans and processes existed for corporate, support and officer personnel
· Managers were unable to easily make recommendations for pay awards for top performers
· Variable pay in the form of bonuses determined using different criteria and timing across the company
· Stock options were managed and administered manually and completely separate from other pay plans
· Timing, rules and tools for each of the company’s pay practices were different, creating further complexity and cost in the overall total compensation approach
From Many, One
SAP made recommendations to:
1. Consolidate administration of all pay practices for annual wage and salary increases, variable pay, and stock awards, into a single tool
2. Simplify every manager’s experience in making pay recommendations
3. Standardize each pay process as much as possible to decrease annual maintenance and change requirements.
To accomplish these goals, the customer chose to implement the Enterprise Compensation Management functions in SAP Human Capital Management (HCM). The customer, at that time, was in the process of blueprinting the system design for SAP HCM Personnel Administration and Organizational Management, and Payroll. Enterprise Compensation was added to a the scope and all the relevant compensation plans for all employee populations were designed to integrate with the data elements from these other HCM modules.
The key design improvements in the implementation included:
· Specific enterprise design which standardized data groups relevant for overall HCM use as well as specific total compensation plans
· Adjustments to business processes to common date planning and payments for all employee groups, instead of monthly or staggered planning and pay adjustments
· Delivery of key employee data to managers in a user-friendly interface, to allow them to more accurately and efficiently plan and recommend payments for their direct reports
· Use of common, integrated data across a single total compensation platform, instead of duplicate (and often erroneous) data sources for each different planning tool
Post-implementation, the SAP customer is now in its second annual cycle of total compensation with the SAP solution. Some improvement measures include:
· Salaried associate pay increases are planned and paid at the same time each year (instead of on an individualized, monthly basis
· Manager input and approval of payments is accomplished in approximately 50% less time
· Union pay adjustments now are completed in approximately 30% less time, with significantly fewer errors, and fewer resources required to accomplish the process.
The integrated and standardized consolidation of many processes and systems into one has provided this SAP customer with a strong foundation to manage corporate total compensation. The company’s next step includes planning for additional integrated talent management strategies and tools which leverage this unified compensation strategy.