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As worker preferences change and workplace realities shift, many firms are revamping their compensation approaches for 2021 and beyond. Yet research by Deloitte Consulting shows that a surprising number of organizations continue to conduct their compensation management activities on spreadsheet software or homegrown systems, which may not be up to the task of securely and efficiently administering the strategies needed to achieve a mature total rewards program.

To help companies understand how “high-maturity” compensation management can meet the demands of the new world of work, the Human Capital Management (HCM) experts at Deloitte Consulting have published a Market Landscape guide titled Compensation Management Solutions: Market Primer.

Achieving total rewards maturity

Deloitte identifies six factors that drive rewards maturity in high-performing organizations:

Aligned Strategy. Rewards strategy should be aligned with business goals and employer brand. This requires compensation management functionality that can execute the strategy. For example, if a company brands itself as fair and inclusive, it will need the software and analytics to determine whether its pay really is equitable and how to fix it if it’s not.

Holistic Philosophy. More highly evolved rewards programs offer the ability to look broadly at employee wellbeing and tailor rewards packages that are supportive of the needs of the individual, and are able to communicate the full breadth of cash and non-cash rewards through comprehensive, individualized total rewards statements for workers.

Employee Focus. High-performing organizations treat their employees like customers and do everything they can to understand these customers’ characteristics, needs, and preferences. They prioritize user experience, ensuring employees have access to relevant and complete information about their compensation.

Effective Communication. A company’s investment in rewards is diminished if employees are not fully aware of the value and details of their rewards. Compensation management solutions can arm planning managers with the information necessary to have meaningful conversations with their employees, including a clear audit trail of how and by whom decisions were made. 

Greater Frequency. High-performing organizations are more likely to review and adjust base pay more frequently than annually as well as implement variable pay plans with shorter cycles. Compensation management solutions are critical to enabling these nimbler approaches, as manual processes are too time-consuming and labor-intensive to perform more than once per year. 

Team Rewards. High-performing organizations are exponentially more likely to leverage team-based awards. Compensation management solutions should track team membership and be able to allocate budgets and incentives at the team level, as well as to track criteria for rewards based on a combination of individual and overall team performance.

"It may be time to explore the capabilities of the compensation management solutions market to enable accurate, efficient, and equitable workforce compensation.”

New challenges require new solutions

According to Deloitte's 2020 Global Human Capital Trends survey, 64 percent of companies are currently retooling their rewards strategy or are planning to do so within the next three years to perfect their approach. However, only 9 percent report being "very ready" to address the changing nature of compensation expectations and strategies.

Many organizations are placing greater emphasis on compensation as part of their efforts to attract talent and drive performance. Yet many total rewards professionals are still using spreadsheets to simplify compensation processes that typically cannot be handled by HCM software. 

Deloitte’s Market Primer looks at the different solutions available to Total Rewards practitioners in today’s marketplace. “With compensation as the largest portion of an organization’s labor cost and a foundational element of the employment value proposition, organizations may no longer wish to rely on legacy technology systems to manage it. It may be time to explore the capabilities of the compensation management solutions market to enable accurate, efficient, and equitable workforce compensation.”

Categories of compensation management solutions

Deloitte’s market research identifies four main categories of solutions that support the design, management, and communication of compensation programs, as follows:

Human Capital Management Systems: They offer the advantages that (a) most large firms have one, and (b) they integrate workforce information with compensation planning. However, Deloitte finds that HCM users often face limitations in the “customizable capabilities to support complex compensation strategies including variances in plans by role, level, department, or geographic location.”

Talent Management (TM) Suites: Deloitte lists these separately, though there is no real industry consensus on what is included in TM vs. HCM. However you categorize it, the maturity level of the compensation solutions are similar. For compensation and performance management to function properly, TM modules must be combined with other modules.

Pure-Play Compensation Solutions: Dedicated compensation solutions (such as beqom) provide integration with a wide variety of established HCM and TM suite providers, and can provide the best of both worlds: robust compensation management along with ease of use and compatibility with existing systems, so you can keep what’s working. Along with specialized compensation planning and calculation applications, they offer analytical and reporting support. Because they are focused on compensation, notes Deloitte, they often are designed by seasoned total rewards practitioners to support best practices.

Compensation Analytics Solutions: While they do not in themselves manage compensation, they may provide proprietary access to benchmarking data or analyses, and may provide added analytic capabilities beyond solutions in other categories. The solutions in any existing ecosystem should be evaluated to see if third-party analytics software adds value.

Conclusion

Pure-play compensation solutions have the capabilities needed to advance the rewards maturity of the majority of companies in the marketplace. According to Deloitte, “Pure-play vendors currently support only 6 percent of organizations surveyed, leaving compensation solutions with room for growth and increased influence. A mature approach to total rewards, combined with the right solution, can help organizations create a robust compensation program that can thrive amid disruption in the new world of work.”

Want to see how well your current system is performing? Take this quick interactive Rewards Maturity Assessment to see if there is room for improvement in your rewards strategy.

Rewards Maturity Assessment