3 Compensation Software Considerations For HR Leaders

Choosing the right human capital management system

Businesses in the mid-market segment generally have a workforce of between 100 and 1,000 employees. They represent around 200,000 companies in the U.S. and more than 3 times worldwide. Despite the robust underpinnings enjoyed by many of these enterprises, this group has historically been marketed various degrees of scaled-down HCM software solutions. 

This is a result of some commonly held perspectives about mid-market organizations, including having major budgetary constraints that force a “good enough” automation strategy versus something more transformational and lacking in-house IT resources to support a product deployment or periodic upgrades. As a result, human capital management (HCM) software vendors must either pre-configure various product usage rules (which can reduce flexibility to align with business needs) or simplify the configurability of the toolsets delivered, as the more sophisticated ones are usually not designed for admin users. 

An argument can easily be made that one of the main HCM functionality areas where this dynamic has impeded business value for customers is compensation management. This is because pay - and more broadly speaking total rewards - practices are universally recognized as one of the most important drivers behind why talent joins and then stays at a company, remaining engaged and productive.

The notion of scaled down functionality and sophistication, as it relates to a compensation management solution, often means a lack of flexibility without manual workarounds, the need for supplemental tools, such as spreadsheets, and requests being made to the IT department or vendor for situational support. This naturally leads to a higher total cost, since more resources will be needed to run the compensation process end-to-end. It can also result in payout errors which are costly – and can affect the employer’s reputation. 

Here are the top three considerations for HR leaders looking to implement a compensation software solution.

1. System Architecture 

Take the case of an organization trying to retain its competitiveness in the labor market by offering a new compensation plan to employees, but the plan’s eligibility or calculation rules are not so straightforward. If a customer’s compensation team is unable to define and configure what data is needed, this can result in compromising the plan’s intended outcomes. It can also take longer to operationalize these requirements or have total confidence in how the system functions. And let us keep in mind that “intended outcomes” can comprise a wide range of business benefits.

Conversely, if that new compensation plan can be quickly and thoroughly defined in the system without the IT department, outside consulting, or vendor support, or similarly be able to update an existing plan with new parameters, then a mid-market company can potentially avail itself of other sophisticated capabilities the software offers, as well. These capabilities might be related to leveraging compensation analytics, doing what-if planning and modeling, or importing compensation market data to better guide pay decisions. 

The reason why these capabilities that are usually associated with compensation products can be enjoyed by more organizations is because there are more products available today that reflect the most modern practices in enterprise software development, including isolating the three main software design components: business logic, the user experience (UX) and the underlying database. Without question, this makes for a product that is much easier to configure and mold or adapt to each customer’s unique business requirements that does not require heavy technical lifting. More often than not, we are talking about English-like statements, drag and drop interactions and straightforward guided wizards. 

One final point on architecture: an open API framework makes all the difference given the fact that deployments of compensation tools involve interfacing with adjacent products.  

2. Value Realization

The fact that cloud-based, subscription or SaaS-based software is almost always easier on the budget of mid-market organizations than legacy, on-premise software is no longer a differentiator for software vendors. What is a clear differentiator, however, is the extent to which the vendor has formalized and optimized its value realization program for customers.

Value realization starts with the vendor partner having a solid, detailed understanding of the customer’s business requirements, including data and process nuances and idiosyncratic or complex use cases. System demonstrations and setup activities the vendor participates in, as well as any “try before you buy” opportunities supported by the vendor, are a great way to gauge the depth and breadth of their understanding.

3. Pricing Transparency and Clarity

Finally, as most people, who have evaluated enterprise compensation or other HCM software,  know it can be challenging to fully understand pricing, not just the per employee per month (PEPM) subscription cost, but everything else that can enter the picture. For example, is there a separate charge for data storage or number of users? Or what will the vendor charge to adapt its API framework or help you import market pricing data? 

When extreme price transparency and clarity exist, the vendor partner is demonstrably committed to a value realization program, and the product is reflective of the most modern cloud architecture and system design, a mid-market organization and compensation department can in fact participate in all of the benefits that normally accrue to large market companies.  

Barkat Ali is Global Head of Product, Compensation, at Unit4. Visit www.unit4.com