Evolution of Compensation Management Systems

Pivot’s CEO Philippa Youngman was recently interviewed for Total Rewards, a quarterly publication focussed on Compensation, Remuneration and Rewards trends produced by Aon Hewitt for the Indian market.

Q. HR as a function has not been one of the early adopters of technology. However, the game has changed in the last couple of years. Do you see this shift?

A.  There is a shift in HR understanding in the sense that they are no longer playing an administrative role handling the softer aspects of HR, but it’s evolving to include taking ownership of people strategy, using metrics, focusing on aligning themselves with the business and partnering with the functional units. The rise of HRBP roles would indicate that HR is working closely with divisional and geographical areas which provide them the opportunity to pay close attention to the impact of HR on business activities. I think, in the early days HR felt that the human aspect of what it means to grow and support your employees would be taken away with the use of technology. However, what has transpired is that technology helps to highlight facts and therefore, either supports or reduces the subjectivity of people-related decisions. It also helps to reduce the mechanical aspects of people management processes that require no emotional intelligence, leaving HR to provide impact at a strategic level, knowing that the technology is offering security, efficiency and accuracy to the data and workflow.

Simultaneously, the expectations from HR as a function are also increasing. For example, managers desire to be empowered to make better compensation decisions for their teams using project goals data, KPIs and other performance indicators. Even where conversations such as performance ratings are out of the door, HR is still using some form of metrics to provide that objectivity in rewards outcome decisions. This is where technology is expected to change the game for not only HR but for organizations overall.

Managers desire to be empowered to make better compensation decisions for their teams using project goals data, KPIs and other performance indicators.

Q. What according to you are the main triggers for organizations to adopt HR tools and technology solutions? Any areas within HR where you see this happening more than the others?

A. From a business perspective, the trigger is the responsibility to provide a stronger experience to the decision-makers – line managers, CFO, CEOs – having a line of sight, transparency, accountability and empowerment. Technology enables HR to provide that superior data and analytics-backed experience and service to their stakeholders. Time is of the essence and with digitization as a focus area, organizations understand that technology is imperative for their success.

The compensation review process is the ideal first step towards systemizing HR. This is because there is often already a tool or process (usually Excel) that has been used to manage the data, the decisions and the communications to all those that need to be involved. However, such tools have limitations when we consider data security and integrity due to the usually high level of human interaction necessary to get input from many individuals, disaggregation and aggregation of data sets, etc. So the organization is often unaware of the potential risks associated with a process that is running smoothly due to the skill of a select few. A platform for change is often triggered when a key person leaves and their knowledge and expertise goes with them. At the same time, the compensation managers crave to use their HR qualifications to make an impact, rather than spend sleepless nights worrying about data integrity, human error or doing admin work. This is when we often get a call.

Q. Rewards managers are now expected to be more than salary increase administrators. In your experience, what are the key benefits derived by organizations through implementation of compensation management tools?

A. For three to four months of the year, the rewards managers are seen to become data manipulators to manage the process of salary decisions when their expertise often relates to the strategic benefits of rewards and their responsibility to the organizational and people goals. Getting the salary review process right, and doing it efficiently with the help of tools serves dual purposes – creates credibility among managers in the system and then provides the time for a rewards manager to assist with the policy evolution, strategic plan design, etc.

To me, data security and integrity is one of the often ‘hidden’ benefits. If the process goes well, then these two issues do not present themselves. However, any data breach or inaccuracy affects the credibility of all involved as well as the employer brand. It is hard to quantify in monetary terms what this means, however, we have heard of many stories where this has provided the catalyst to a purchase of a robust solution to manage the process. The financial analytics and reporting is a key output derived by organizations through these tools. Budget modelling, matrix simulations and the whole diagnostic and descriptive analytics and reporting around it can take compensation reviews and decisions to new sophisticated levels. From a strategy perspective, compensation reports are now focused on what to present to the board – the emerging trends, analysis and gaps and not just static data.

Managers’ time saved, reduction in timeframe to complete the compensation review, budget spend alignment with better transparency gained via automation are other common measures for organizations to see whether investing in technology has brought about the right results.

Q. Organizations are seeing a shift towards clearer rewards philosophies, sharper pay differentiation, and greater decentralization of pay decisioning and communication. Do you see these trends impacting the need for best-in-breed compensation management tools?

A. The key thing with making compensation decisions is providing real-time facts to the decision-maker to avoid the need to revisit or further negotiate outcomes. These include dynamic answers to questions such as ‘what is my budget?’, ‘how am I performing against that?’, ‘what are the key policy statements I need to be concerned about?’, among others. A traditional process would involve communication prior to a compensation review event that educates managers about current market trends, budget this year, focus areas, etc. and they are often expected to filter this as they make each decision. A best-of-breed solution often has its origins from the heart of the true business problem – recognizing the real-life experience and problem that needs to be solved and providing guidance at each phase of the decision-making process to ensure everything is staying on task and the expected outcome is delivered accurately and on-time. The beauty of best-of-breed is the depth of expertise and knowledge that comes with the tool, ease of configurability and flexibility. Organizations today face growth, mergers, acquisitions and restructures which need to be taken into consideration when it comes to pay. A best-of-breed provider is able to adapt to these in an agile manner. They do not need to develop a code from scratch if life changes, they can simply make changes at a click of a button and that is the efficiency that is required at the time of salary review which is usually a time bound process. Failure to comply quickly with organizational changes is not taken lightly – human beings are very attached to their pay outcomes and rightly so.

A best-of-breed solution often has its origins from the heart of the true business problem – recognizing the real-life experience and problem that needs to be solved and providing guidance at each phase of the decision-making process to ensure everything is staying on task and the expected outcome is delivered accurately and on-time.

Q. How do you see Pivot’s online compensation management tool benefiting organizations in India, majority of whom use Excel sheets for budgeting and salary increases and administration?

A. India as a nation has a large workforce and managing processes for those many people on Excel is often problematic. Audit and governance implications are important to consider. Excel, in essence, remains a manual tool and is personal to the creator. The data also has to ‘arrive’ from somewhere and ‘go somewhere’. Aggregation and disaggregation of data is inevitable for a salary review process and although a high level of care does occur, human intervention creates the opportunity for error. Analysis of compensation review outcomes can only occur at the point of aggregation, which is often after the decisions have been made. So, the rewards manager is left with two choices – narrow down the degree to which a people manager can make discretionary decisions to ensure organizational policy is delivered, or analyze it after the event and identify areas for improvement for the next year. With an online tool, more real-time analysis can occur and decisions redirected during the process to arrive at the desired outcome. Often the decision-making can be further devolved from senior managers because the system can manage the key aspects such as organizational policy and budget.

India comes with a workforce that is technology savvy and embraces innovation. This cultural shift needs to occur in the HR world simultaneously to keep up with the ethos of where the country wishes to head towards with regards to technology and digitization.

Q. How do you see the space evolving in the next five years?

A. In the next five years, I believe we will see an ecosystem of tools for each HR process where organizations can choose freely the best-of-breed tools that suit their organization’s requirements and culture. Data will move seamlessly between the tools even though the providers may be different. No longer will it be seen as necessary to choose one provider or associated providers for all HR needs due to data integration challenges. In addition to this, I see a rise in expectations from the tools to be able to combine both internal and external data to provide higher degree analytics for business aligned compensation discussions and decisions.

Pivot Software has partnered with Aon Hewitt to provide its solutions to Indian companies wanting to simplify the management of their remuneration review process. The interview was originally published in the latest issue of the magazine. It is also published here.