COMPENSATION PLANNING CYCLE

Transcription

1 5 STEPS FOR ENSURING A SUCCESSFUL COMPENSATION PLANNING CYCLE

2 Introduction Compensation planning is one of the most important processes in any organization, but it can also be the most challenging. Each year, compensation leaders must tackle the complexities surrounding the compensation planning cycle while developing a strategic plan that will ultimately drive better business results. Even for businesses that already have an effective compensation planning cycle in place, there are always opportunities to improve the process. Because the year-end process is typically the largest and most visible process that HR will manage each year, the stakes are high and the pressure is on (and everyone is watching) but its also a great opportunity to show the impact a great planning cycle can create. Executing a successful planning cycle involves both a strategic and tactical approach. In some ways, it s as much about project planning as it is about compensation planning. The right approach can make the process less complex, more aligned with the organization, and more successful overall. Ultimately this provides your leaders the data needed to make thoughtful decisions about your company s most valuable resource: your people. To help you better create a successful planning cycle, we ll cover five major topics in this guide, including: Mapping Out The Process Planning Ahead: How And When To Begin Knowing Where You re Going The Rules Of The Road Summarizing The Plan and Communicating Results In addition, we ll also cover some best practices for continuous improvement. Ready to create your most successful compensation planning cycle ever? Let s get started by discussing how you can map out your current process. Copyright 2016 HRsoft Page 2

3 Mapping Out The Process The very first step to ensuring a successful compensation planning cycle is mapping out your current process. Doing so presents a great educational tool for new and existing HR employees while helping other individuals to better understand their roles in the year-end process. We already know that compensation is the biggest investment for any company. Taking the time to plan the process in advance will ensure that it is carried out with integrity and that it reflects the intentions of your organization s performance and talent management programs. It will also help to ensure that you get the best possible ROI for your compensation plan. Here are some things to consider for the mapping process. The Six Sigma Process If you re already familiar with the Six Sigma process, you may want to implement this strategy for mapping out your compensation planning cycle. As a refresher, the five steps of this process are: 1. Define 2. Measure 3. Explore 4. Develop 5. Implement Who To Include The participants you include in the mapping out process will ultimately depend on factors specific to your company, such as your culture and existing processes. In general, you should consider including individuals from the following groups: Total Rewards HRBPs (typically at least one from US and at least one from each region/country) HRIS IT Payroll Finance Copyright 2016 HRsoft Page 3

4 In addition to those listed above, you may also want to have your company s benefits specialists and CHRO involved in the mapping process. If any legal documents are required for the program, you may also need to have someone from legal. Additionally, you may also need to involve executives, the Secretary to the Board of Directors, and people managers. The Outcome The mapping out process is beneficial in multiple ways. Not only does it provide a comprehensive timeline and a complete overview of your current process, it also sheds light on any areas that could be improved. You may find that certain steps can be eliminated, or that some policies and practices need to be clarified. Additionally, seeing a before and after map of your compensation planning cycle can be a compelling trigger for change. The result can act as a powerful tool which can help you affect change or improve your existing process. Whether you would like to make fundamental changes to your existing process or you just need to streamline your current approach, mapping out the timeline is a crucial first step. Copyright 2016 HRsoft Page 4

5 Planning Ahead: How And When To Begin One of the challenges of developing an effective compensation planning cycle is that many mangers tend to put it off. While many of us may have strong intentions to plan ahead, the inevitable day-to-day tasks keep us busy and keep planning on the backburner. Yet, planning ahead is important: it ensures that you ll have enough time to think through the year end process in advance. It also allows everyone involved to consider the impact that the company wants to deliver regarding talent and compensation management. When To Start It may seem quite early, but it s recommended that you start your compensation planning cycle at least eight months before it goes live. Why? Once you consider all of the tasks that need to be completed, as well as all of the individuals that will be involved and the aspects that may require approval, any amount of time shorter than eight months probably won t be enough for most organizations. How To Start You must designate one project manager who will be responsible for managing the overall cycle, and escalating any issues to the appropriate individuals as needed. He or she will also be responsible for reaching out to any functions outside of HR, including finance, IT, and payroll. Copyright 2016 HRsoft Page 5

6 Typically, this individual will be someone on the Total Rewards team. Depending on the size of your company, it may or may not be the head of Total Rewards. This project manager should then partner with the Human Resources Leadership Team (HRLT) to determine which other individuals will comprise the team. The project managers should have a strong working relationship with the other individuals who will be on the team, because compensation planning oftentimes requires a great deal of compromise. Defining Roles It s possible that there will be many different stakeholders involved in the compensation planning process. In addition to someone from Total Rewards, your team might also include individuals from HRIS, IT, Finance, Payroll, Legal, Performance Management, and Talent Management. It s important to achieve clarity when defining each individual s role and responsibility in the process. Doing so in advance will help minimize assumptions and confusion as you progress. Using Governance Decision Tools In addition to defining roles, you may also want to outline a governance plan in advance so that everyone knows who is ultimately responsible for decision-making, versus who will be consulted, informed, and held accountable. Creating A Timeline After you ve determined your stakeholders and defined their roles, it s time to create a timeline. Here are some tips to consider: Include start and end dates (a date range) for each of the activities Outline hard due dates (those that would require a significant change to the schedule if missed) Identify by name each individual who needs to accomplish certain activities Schedule meetings involving executives as early as possible Consider color-coding certain parts of the timeline to indicate who s involved (green for total rewards, yellow for performance management, etc.) Copyright 2016 HRsoft Page 6

7 Knowing Where You re Going Part of developing your compensation planning cycle is having the foresight to consider how certain variables could impact your plan. For instance, consider the impact that changes in performance ratings or bonus/incentive eligibility might have on the compensation plan. The timing of such an announcement should be considered in relation to your compensation planning cycle. It s important not to underestimate the ways in which program changes could impact your annual process. The compensation planning team should have a thorough understanding of the performance, talent, and compensation programs within your company, and the ways in which these programs affect one another. It s also critical to understand the philosophy behind each of these programs. Action Items Here are some action items to consider for making your compensation planning cycle run smoothly: Collection of market data Obtaining company scorecard results Seeking budget approval for key talent, merit, promotion, incentive/bonus pool, etc. Seeking Board of Director approvals, if needed Updating salary planning software Training needs, if applicable If you are implementing a new website or software program, don t forget to test it thoroughly before launching it. In addition to having HRIS and IT complete test runs, it s always helpful to have an additional set of eyes look at the system to ensure that there are no errors or unintended changes. Determining who will complete the aforementioned action items and when they will be due is crucial for running a smooth compensation planning cycle. Copyright 2016 HRsoft Page 7

8 The Rules Of The Road Essentially, when you re on your compensation planning journey, the rules of the road refer to the ways in which you re going to communicate information to other individuals. This step is perhaps the most critical for ensuring that the entire process succeeds. Information To Be Communicated Some of things you ll need to communicate to individuals either prior to or during your compensation planning cycle are: Deadlines and activities that need to be completed Budgets Company philosophies, including how promotions work, how bonuses are calculated, and so forth Training for salary planning software How To Communicate Information Unfortunately, sending s isn t always the best way to deliver communications related to compensation planning. Instead, you may need to take more of a creative approach to get the attention of individuals. For instance, you might want to consider holding a luncheon for managers who need to be involved, having an informal quiz to test their understanding, or posting information on the company s website. One of your goals here should be to make sure that managers are ready to carry out the message about your compensation plan throughout the organization. It s a good idea to have an HR Business Partner briefing in advance to ensure that all of the necessary parties have the opportunity to review communications materials in advance. Key Planning Strategies There are a few strategies you can use to help your cycle stick to its designated timeline. Sometimes, it s helpful to use holdbacks as a tool to ensure that there will be ample funds to spend on key performers. You can also aim to identify key performers in advance, if possible. Also, if you re working with a limited budget, you might want to use a merit bonus adjustment strategy. Using these approaches can shorten your compensation planning cycle tremendously, because they prevent you from having to go back and change plans several times. They also ensure that the key performers are being rewarded appropriately. Copyright 2016 HRsoft Page 8

9 Summarizing The Plan And Communicating Results Once you ve made it to this point of your compensation planning cycle, you re in the home stretch but the work isn t over yet. After performance ratings have been finalized, promotion recommendations have been submitted, and salary information is complete, you are now at the point where you must summarize everything and interpret what it means. Key Takeaways Your team can review the key findings of the compensation plan, including information about promotions and low ratings. This can be incorporated into your summary, along with additional key metrics: The Budget vs. What Was Actually Spent Some business leaders want a breakdown of this information; others prefer a straightforward yes or no to answer the question: Did we stay in line with the budget? With that being said, many companies are now focused more on people analytics, so executives may be interested in any data that aligns with retention and employee engagement. Pay For Performance Message Alignment Were you able to reward top performers? Take a look at how your performance data compares to compensation recommendations. Results On A Global Scale You can present data on a global, national, and/or regional scale to highlight any key differences based on location. Copyright 2016 HRsoft Page 9

10 Presenting The Results Once you ve summarized the key takeaways, you can optimize the results of your compensation plan by presenting it against the budget with three or four topline takeaways. You can provide your most compelling statistics to managers, CEOs, and even your company s employees, depending on how transparent your company is. Your presentation should be succinct, compelling, and should discuss and next steps that need to be taken. Be sure to go over the ways in which the plan impacts the bottom line, promotion results, and the impact the plan will have on key talent. Here are a few examples of topline takeaways you might include in your presentation: We were able to reward topline performers with a merit increase 3x more than the average increase company-wide We promoted X percent of the population, the majority of which has previously been identified as key talent with high career potential Bonuses increased on average X dollars based on outstanding company performance and were funded by the company s results The percentage of employees needing coaching is 2% higher this year, which requires further research As you can see, there are many ways in which the compensation plan can tell a complete story about how you re managing your biggest investment: your employees. You can present findings that extend beyond fiscal data alone to help provide an all-encompassing overview of people management in the organization. Tips for Communicating The Outcome Once you ve communicated the outcomes to upper management and executives, you can begin to disseminate the message throughout the rest of the company. Before you do so, however, it may be advantageous to give managers some talking points to help them prepare for any questions they may encounter. Specifically, HR should provide managers with guidelines and strategies for communicating difficult messages. That way, employees who didn t receive promotions, bonuses, and so forth, can discuss these matters with their supervisors directly. After you ve completed all of these steps and the cycle is done, you can begin looking at opportunities for improvement. Copyright 2016 HRsoft Page 10

11 Continuous Improvement To determine whether or not your compensation planning process was truly successful, you can hold an After Action Review (AAR). This will help you determine whether or not you achieved the intended objectives, and whether or not the planning cycle worked well for everyone involved. Best Practices To get as much feedback as possible during your After Action Review, here are some tips you can follow: Include All Participants Everyone who was involved in the planning process should have the opportunity to contribute to the discussion. Again, this could include some senior managers, HRIS, HR Business Partners, and so forth. Document All Feedback Designate someone who will be responsible for documenting all feedback. Don t worry about interpreting or organizing the information just yet simply gather it all first. Have Someone Facilitate The Session To help things run as smoothly as possible, this should be someone other than the person documenting feedback. Discuss Any Obvious Cycle Changes If it s readily evident that cycle changes need to be made, you can discuss how these changes will be made for the next cycle. Of course, you can also take the time to review any feedback as needed before discussing changes for the next yearend cycle. Use Open-Ended Questions Ask specific questions to get the most value from your After Action Review session. Copyright 2016 HRsoft Page 11

12 Questions To Ask Here are a few open-ended questions you can consider asking during your After Action Review: What was supposed to happen during the compensation planning cycle? What actually happened? What went well? What should be changed? What can be done to improve the process next time? Closing Statements And Next Steps The session facilitator should wrap up the After Action Review with a summary, and next steps should be discussed. Keep in mind that continuous improvement is a process, not an event. There may be steps that need to be taken for future improvement, and it s possible that not every item will be solved in just one meeting. Also, remember that there will be certain portions of the planning cycle that may not be able to be changed, either because it won t reflect the company s philosophy or it will be impractical for the process overall. Copyright 2016 HRsoft Page 12

13 Summary By now, you should have an understanding of how you can make your compensation planning cycle as powerful, simple, and effective as possible. You may have also discovered new ways in which having a successful planning cycle can better facilitate your company s ability to manage its best asset, its people. For a quick review, here s what we discussed in this guide: Mapping Out The Process You can use the Six Sigma Process to map out your planning cycle. This process includes the following steps: define, measure, explore, develop, and implement. You ll also need to determine which individuals will be included in the mapping out process. Mapping out your planning cycle will help you find out whether you can eliminate any steps, or if there are any processes that need to be clarified. Planning Ahead: How And When To Begin You should start your compensation planning cycle as early as 8 months before it goes live. You can begin by designating a project manager, then defining roles for the additional stakeholders. It may help to use governance decision tools so that everyone has clarity in advance about who has the final authority on making decisions. You can then create a timeline with deadlines, date ranges, and names of individuals involved. Knowing Where You re Going When developing your compensation planning cycle timeline, it s important to consider all of the action items you ll need to complete, such as collecting market data, seeking approvals, implementing new compensation planning software, and so forth. The Rules Of The Road Determine the information that will need to be communicated to others prior to and throughout the compensation planning cycle. You should also consider the best ways to communicate this information, as s and notices are typically ineffective. Consider the key planning strategies that may help reduce the amount of changes that will need to be made to your plan, which can thereby help you stay on time with your planning cycle. Summarizing The Plan And Communicating Results Once the cycle has ended, you can summarize your findings and present three to four topline takeaways to key stakeholders. You should also provide tips for managers for communicating results to their teams. Continuous Improvement To ensure the greatest level of success for your compensation planning cycle, it s best to seek continuous improvement by holding an After Action Review with the stakeholders. Document feedback and use it to inform your decisions about the next yearend process. Following the steps presented in this guide will help you carry out a successful compensation planning cycle with as few complications as possible, so that your organization can make compensation decisions that will yield optimal outcomes. Copyright 2016 HRsoft Page 13

14 Resources COMPview Compensation Planning Software Automate, Align & Simplify Complex Compensation Planning Not sure where to start? We would love to help. Contact us for a wide variety of additional resources and learn more about our best-of-breed compensation planning software, COMPview. Click here to learn more & watch a short demo. About HRsoft HRsoft is an award-winning talent management software company that specializes in cloud-based HR solutions built to improve manager effectiveness and business results. We offer a complete suite of configurable HR SaaS software that integrates with any HRIS. Learn more at About the Authors Jean Casner Managing Partner, Crescere, LLC Jean Casner is the former VP of Compensation and Human Resources for the National Basketball Association (NBA) and has more than 20 years of experience in compensation planning. She has worked as a compensation manager at Johnson & Johnson and served as the Executive Director of Global Compensation & Rewards at Merck & Co. Inc. Casner currently works as Managing Partner for Crescere, LLC, a minority-owned human resources consulting firm in New Jersey. Connect on LinkedIn Brian Sharp Chief Marketing Officer, HRsoft Brian is responsible for all product marketing at HRsoft, a leading talent management software company. Brian brings to HRsoft 20 years of entrepreneurial experience that includes helping companies in all stages of growth develop and execute successful go-to-market strategies. He is an award-winning keynote speaker and frequent presenter on topics including HR SaaS technology, business strategy and marketing. Brian resides in Northern California with his wife and three children. Connect on LinkedIn Copyright 2016 HRsoft Page 14