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November 30, 2007 6:15 AM

Compensation Technology Goes Mainstream

Linking Appraisals and Compensation

Check out this feature in November's Talent Management, titled "Compensation Technology: Drive Higher Performance, Gain Competitive Advantage".

It explains how compensation management technology has become increasingly mainstream over the past few years, and how it is transitioning from Excel-based programs to best-of-breed applications from vendors dedicated to employee performance and talent management solutions.

The article states that Yankee Group research analysts forecast a 19.6 percent growth in the compensation management market 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. We have also found this to be occurring, with many of our customers tying their employee performance appraisal cycles directly to base compensation and spot bonus levels.  Increasingly, organizations are realizing how tightly compensation and appraisals must be linked as part of a successful talent-management process.

When looking at talent management vendors, it's essential to consider those whose technology will easily integrate into your existing payroll software. When integrating a new solution, you don't want to have to unnecessarily change established processes and procedures within your HR and accounting departments. 

Look for a software solution that is flexible enough to integrate with whatever platform you've got, as well as duplicate the look and feel of current (maybe paper-based) performance review and compensation forms. Otherwise the learning curve and implementation costs of using an automated system may get out of hand.

Reporting is a key feature too. According to the article, compensation technology provides organizations with a standardized vehicle to not only capture and document compensation decisions, but to also document and communicate that they are made fairly, accurately and within corporate guidelines. But a step further is the ability to systematically review compensative levels and measure those against budgets and financial forecasts. This is a powerful tool for the company's bottom line, as you can identify specific managers who may routinely over-spend on compensation, or those who are not spending enough and experiencing higher-than-average turnover among their top performers.

Finally, the article points out that compensation technology should be able to accommodate exceptions. Employees who make significant contributions to company success should be recognized for their efforts. In addition to variable pay components, think about alternative rewards such as "spot award programs" to motivate high performers when corporate guidelines do not allow for a merit increase.

Long story short: appraisal technology and compensation technology should be closely linked in any organization. If selected and implemented properly, they should be able to serve as a planning tool and competitive advantage in your market.

Are you using compensation technology? Tell us about your experiences...

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June 23, 2008 5:15 AM

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