Compensation: What's Blocking the Holistic View

The ability to align strategic goals with workforce performance has long been the holy grail of corporate performance management. But the vision remains unrealized at most companies, in part because of the complexities of the "pay" side of the pay-for-performance equation.

Businesses struggle to build a holistic view of compensation, notes Mark Smith, CEO and executive vice president of research with Ventana Research in Pleasanton, Calif. "Managing compensation is far from a simple exercise," he says. "It's not just the hourly wages that you may pay some of your workforce or the base salary you pay. It means looking at the bigger picture. It's about the processes that you go through for planning, executing, and analyzing your compensation management and making sure that you're looking at all of the different components, including benefits, incentives, retirement, and stock awards."

Ventana's Total Compensation Management Benchmark, a study of practices at more than 300 companies, details some of the obstacles organizations face in understanding and optimizing their pay programs. The biggest impediments: limited alignment between pay and performance, lack of an integrated total compensation process, and the fact that information is scattered across silos of files and systems.

The use of spreadsheets is prevalent in managing compensation, according to Ventana. Just over one third of companies depend exclusively on them. About 60 percent use a compensation system, but many of those organizations supplement the technology with spreadsheets.

What's more, 82 percent of respondents in the Ventana poll say their company has found errors in the spreadsheets it uses in its compensation management processes. "Organizations are challenged in using spreadsheets and inadequate systems -- many times custom-built systems -- that are actually preventing them from advancing," says Smith. "Many of the key aspects of compensation that fall across enterprise incentives and sales are not getting the right attention and the right investment."

A new Business Finance online poll echoes some of Ventana's findings. When asked to identify the biggest challenge their company faces in improving its overall compensation management process, nearly 47 percent of respondents reported that lack of systems integration (for example, the use of siloed spreadsheets) is obstructing their company's view of compensation. Lack of collaboration between different functions is a common challenge, too, cited by 20 percent of respondents. Thirteen percent said that their organization has little understanding of specific compensation processes, and just 7 percent cited a lack of senior management sponsorship.

Finance has a central role to play in improving insight and bringing rigor to compensation processes, according to Smith. "We've found that many finance organizations are taking the lead to drive improvements in the business. But these efforts should be balanced; they should be partly HR's responsibility."