Compensation must be done on time and without error. But the tools of the trade, often spreadsheets and email, lend themselves to human error. As a result, many HR professionals work late into the night, struggling with outdated tools to audit the data and keep compensation processes on track. This article explains how new technologies are rescuing companies from the burdens of manual compensation management processes.
There have been advances in HR technology where the payoff is large and the implementation risks small, but still many companies use old methods. Some companies have started acting with more confidence as they recognize that one of their great advantages in global competition comes from their ability to get the most out of talent with a good HR infrastructure. Many companies often have a good personnel infrastructure. They are good at getting people on payroll and handling the complexity of labor laws. However, it is more rare to have a good human resources infrastructure: technology and processes aimed not just at compliance but at getting the most out of talent.
In an interview for the Human Capital Institute, Leigh Branham author of The 7 Hidden Reasons Employees Leave said, “The title of the book talks about hidden reasons, but they are not really hidden to anybody who thinks seriously about this.” HR professionals know the key to retaining and energizing employees revolve around basic management practices such as showing employees they are valued, giving them clear goals, and ensuring compensation fairly rewards performance. In this paper we want to focus on the compensation infrastructure and how it is an important brick in building the foundation of an HR system that will get the most out of it’s talent.
The Explosion of Compensation Spreadsheets
It is hard to remember there was a time when we didn’t have spreadsheets. Lotus 123 and then later Excel, enabled compensation professionals to do things they could never do before. Without needing to rely on the IT department, compensation professionals could use spreadsheets to manage complex compensation plans. Now, an estimated 70 percent of companies in the U.S. use Excel for compensation management.
One such organization is the global materials manufacturer Cabot. Cabot makes the coloring agents you find in inkjet fluid as well as exotic materials like nanogels, micropowders, supermetals and their mainstay, carbon black. With 4,400 employees spread across 18 countries, the administration of compensation is challenging.
James Rowe, the manager for Cabot’s HR shared services center said, “Between the compensation analysts in headquarters and those overseas, HR was handling over 600 spreadsheets to manage base, equity, and incentive compensation.”
The number of spreadsheets is often very large because HR starts the process with a data dump from their HRIS system and then must manually break up the file into pieces that can be sent to each manager. This is, to put it mildly, a labor-intensive task that is fraught with risk of human error. “If I added up all the time I took on our management incentive plan: breaking up the big spreadsheet, emailing it out to each manager, getting them back, and putting the changes in the system, it probably took me a month,” said Kathy Meseck, project manager of human capital management systems at Woodward. Woodward, just shy of 140 years old, is based in Fort Collins, Colorado, and sells its products around the globe. Next time you are in an airplane look at the engine keeping you aloft; there’s a good chance components in that engine were manufactured by Woodward.
Another challenge facing compensation departments is distribution of the spreadsheets and tracking their timely return. Without a supporting compensation technology infrastructure, sending standalone spreadsheets around the company by email can create serious headaches for HR. “It was a nightmare,” Rowe explained. “Invariably compensation analysts would make some mistakes such as sending data about an employee to a manager who no longer works there or just picking up the wrong row. That leads to communication gaps and breaches of confidentiality. Confidentiality is always a big issue in HR, especially in Europe where the Data Protection Act requires you to not send personal information to someone who is not in the need-to-know category.” But after years of dominating the life of compensation departments, the day of the standalone spreadsheet distributed by email is finally coming to an end. New technology takes the pain out of spreadsheets without diminishing their power.
A Revolution in Compensation Technologies
Most HR managers in the manufacturing industry have heard about the new crop of compensation technologies. The flurry of innovation from HR technology vendors has created useful tools in many areas of HR, and compensation is no exception. Companies have discovered that web-based software is relatively easy to implement, genuinely easy to use, and increasingly cost effective. In particular it is possible to implement technology that fixes the broken parts of compensation management processes, without disrupting managers by introducing needless change.
Not so long ago companies would have to look to home-grown software to handle their specific compensation needs. But home-grown software tends to be expensive to create and tedious to maintain. For many HR departments it wasn’t even a matter of the cost of home-grown software; the IT department simply didn’t have the resources to take on this kind of project for HR. But outside vendors now have off-the-shelf software sufficiently flexible to handle the compensation systems of most companies. HR finally has options.
The key advantage of the new wave of compensation software is that it creates a secure infrastructure that automates the distribution and collection of compensation information. The workflow, including the chain of the approval process, can now be handled by the software. Uniquely, in the case of HCR Software, managers and HR are able to continue using their familiar spreadsheets; which are embedded within a web-based application which solves the administrative and error issues presented by standalone spreadsheets.
Woodward came across HCR Software’s CompensationXL at an HRMS vendor’s user conference and presented it as a possible incentive management tool to their technology roadmap team. The team realized that it could be the answer not just for management incentive plans, but also for the appraisal process for annual salaried employees’ increases. Any compensation matters they were handling unaided in spreadsheets could be enhanced by the new technology.
Meanwhile, Cabot had been actively thinking about acquiring compensation software for a couple of years, but while the value of a system was obvious to HR it was not so obvious to management. “Management saw spreadsheets landing on their desks, and from their point of view the system was working really well,” said Rowe. “They couldn’t see all the stuff that was happening behind the scenes.”
At Cabot the turning point came when they put together the statistics showing the number of spreadsheets they were handling and the amount of manual work involved. The hard information was supported by convincing anecdotal information. Rowe explained: “One time a manager meant to send the data to me, James Rowe, but accidentally emailed it to a different James. That manager quickly recognized the advantages of compensation software that would eliminate the need to email the data around.”
Predictably Successful Implementations
Everyone remembers the headaches companies had with big Enterprise Resource Planning, HRIS, and Customer Relationship Management implementations. This experience has led to a fear that no matter how nice a technology looks, actually getting it in place will be a dreadful process. However, HR point-solutions are no longer difficult to implement. For one thing, these projects are much smaller than ERP or HRIS implementations. Secondly, the technology is better designed and vendors have matured to the point where they are much more skilled at implementing the software painlessly.
Implementing compensation software typically takes two to four months; it is not something that stretches out over a year or more. In the case of Cabot the implementation took 14 weeks. For Cabot the real issue was making decisions on business rules, not implementing the software per se; for example, deciding on the approval routing process. They spent as much time on internal standardization as they did on configuring the software.
In the developed world most managers are reasonably tech savvy and training on how to use the software is not a big issue. Cabot did a two-hour train-the-trainer session for HR managers in each region, who then rolled out one-hour training sessions for managers. The sessions for managers were not mandatory; about 50 percent showed up, and there were no significant problems. A one page “cheat sheet” was all the managers needed to guide them through the software. The software used the spreadsheets they were already comfortable with, which minimized resistance to the new approach.
To line managers, the compensation process may not look much different to them after enabling technology has been put in place, which can be a big plus. Rowe explained: “We tried to replicate the managers’ previous experience. They were used to having a spreadsheet land on their desk, filling it out, and sending it back. That’s what attracted us to the HCR product; it is Excel compatible so we use the same templates the managers are used to. While there were some new nice features, like the mouse-over for historical information, on the whole it felt the same.”
Where to Now?
HR technology has moved quickly in the past decade. A variety of tools are helping HR spend less time on administration and more on supporting the business. Studies by the Marshall School of Business at the University of Southern California have shown a correlation between how advanced HR departments are in the use of technology and the extent to which those departments are strategic. The barriers to adopting software such as cost, integration problems, and the lack of experienced vendors are falling away.
We are in an era of ongoing HR innovation with new ideas and new technologies appearing regularly. Technology is going to be ever more pervasive and the HR department that does not have experience with these technologies is not going to be useful to a company striving to best global competitors.
But we can be certain that the days of running compensation without an enabling technology infrastructure are, thankfully, dying. HR professionals would be wise to make selection and adoption of enabling technology a priority. It’s important for both the company and the individual professional not to fall behind the curve of the change in how the HR function runs. Each aspect of HR is being transformed by technology, and this transformation will free up time for HR to do more interesting and important work.
Let’s give the last word to someone who has seen through the transition to web-based compensation technology, Cabot’s Rowe: “Having compensation software made the process more secure, we have faster access to data, and it doesn’t take 40 hours of labor to get something as basic as how much we spent. Managers didn’t feel there was a big difference, but it’s been great for HR and the company. We would never go back to manually managing our spreadsheets.”
About David Creelman
David Creelman is CEO of Creelman Research. He does writing, research and
speaking on the most critical issues in human capital management. Prior to founding Creelman Research, David was Chief of Content and Research for HR.com.