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Compensation & Benefits

Published November 2007

Compensation Technology: Drive Higher Performance, Gain Competitive Advantage

David Turetsky

What do compensation technologies and the telephone have in common? Both have evolved significantly over the last 20 years, granting freedom from previous constraints and contributing to clearer communication. The evolution of compensation technology has enabled organizations to use performance-based pay to effectively motivate employees, attract and retain qualified talent and drive higher workforce productivity.

Compensation technology has come a long way since its inception. A quarter century ago, organizations relied on manila envelopes to hide confidential listings of employee salaries. Manual pen-and-paper processes limited their ability to design compensation plans with any depth or complexity, and documenting exceptions meant writing in the margins of the listings.

Thanks to advances in compensation management automation, those restrictions have been lifted.

Although a few still use the envelope approach, many organizations continue to rely on Microsoft program-enabled processes for compensation management. But as their businesses grow larger, they've discovered spreadsheets such as Excel aren't the right foundation on which to build.
 
Now, companies (even those that customize Oracle and SAP applications) are opting for best-of-breed applications from smaller vendors. The result is solutions that can help plan and budget salaries and salary increases, streamline compensation cycles, ensure consistency and fairness, and empower managers in the organization to pay for top performance — all while adhering to corporate guidelines and budgets.

Paying for Performance Helps Spur the Need for Automation

Yankee Group research analysts forecast a 19.6 percent growth in compensation management over the next several years as more organizations seek to develop a pay-for-performance culture and recognize compensation as the cornerstone of effective talent management.

Industry research also shows that enabling consistent and standardized compensation processes can drive better individual and organizational performance. Further, by creating a deeper understanding of the connection between pay and performance, organizations can foster shared accountability and ensure business objectives are aligned with organizational goals.

But they can't do any of this without the right tools and technologies.

More organizations also are starting to embrace compensation technology because of the strain on today's HR departments. Over the last 10 years, the role of the HR professional has changed dramatically, becoming more complex — there is more focus on creating and delivering HR strategies and services that drive desired business results. Today's HR and talent management professionals are required to provide systems to support the design of work positions, recruiting, rewards, recognition and strategic pay in addition to career and succession planning and employee performance and development systems.