As the plan design season starts to wrap up, it’s not too early to think about how to improve the administration of your new plans. Companies invest a significant amount of money to fund incentive plans, yet most companies are lacking in efficiency and effectiveness when it comes to administering these plans.
Do any of these sound familiar: lack of tools, lack of controls, constrained IT resources, ad hoc manual processes and single points of failure? The result is a less than maximum return on compensation dollars spent due to inaccuracy, poor reporting capabilities and poor service levels to the field. I’d like to share an easy-to-implement improvement road map to help organizations address this complicated process.
- Determine your definition of success by objective setting.
- Analyze how far away you are from success through benchmarking.
- Figure out what obstacles you have and plan to eliminate them with value steam mapping (or other process analysis tool).
- Chart your progress by tracking and measuring.
When it comes to compensation administration, one of the first questions to ask is if your organization has clearly articulated objectives and the metrics to track progress against objectives. If you don’t, you are not alone. However, this is one of the key differentiators between high-performing compensation admin teams and teams that are struggling to meet core expectations. Some of the common objectives I recommend include:
- Calculation accuracy
- Balance between cost to administer the plan and service levels
- Timeliness in calculation and reporting
- Ability to rapidly implement plan or reporting changes
- Time to resolve disputes from the field
Once the key success objectives are selected and a baseline of performance is determined, it’s a good idea to benchmark your organization against others of similar size, industry and complexity. A lot of organizations think they have a good feel for how they are doing based on informal subjective analysis. The value of going through a benchmarking exercise is to objectively determine if you can stay the course. More often than not, organizations realize they need to make significant process, people and technology changes to achieve their desired objectives.
Value Stream Mapping
The next step is to document and analyze your end-to-end compensation administration process and determine where to make improvements by increasing process maturity, minimizing waste and focusing on adding value. Any number of process mapping techniques can be used for this step. ZS likes to use a lean manufacturing technique called value stream mapping (VSM). One of the key benefits of applying VSM to the compensation administration process is that it documents both process steps and information flow. The output of VSM will include an original current state that defines the starting point and an optimized future state of where you would like to end up.
Track and Measure
The final step is tracking progress both on the objectives and the value stream improvements. Best practice is to track and publish performance against each objective every time a payroll cycle ends. For the process improvement, a virtual current state map should be created to show where the process stands now. This can be updated as frequently as monthly but no less frequently than quarterly to show an accurate representation of process improvements.
By completing these four steps, you will make tremendous progress toward building an effective and efficient compensation administration program and maximizing return on compensation dollars spent. Do your feel like you have an effective compensation administration program? Why or why not?