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Optimize Your Compensation Spending in a Downturn

When times are tight, it is even more important to be on top of your compensation strategy and control your costs. You need to understand what is going on in the business—so that you can make the right strategic decisions.

Compensation is one of the biggest costs in any company and often one of the first areas that management looks to cut during lean times. An across-the-board approach, like “Everyone has to cut 20%” may get the numbers down, but is it right for the business? You may be able to save the same amount but in a smarter way, with less negative impact on the ability of the business to function. And it could certainly help to understand if you need to cut headcount or instead adjust compensation plans.

This is where information—compensation and performance data and the ability to analyze it with compensation management software—can make a huge difference. 

Analyzing compensation effectiveness

Do you have the data and tools to analyze compensation effectiveness so you know where you are getting value for your investment and where, perhaps, you are not?

Compensation effectiveness can be defined as the ratio of compensation paid to results produced. Those results can be measured in terms of any of the metrics that you track to determine achievement of goals: sales, profitability, customer satisfaction, units produced, and so on. 

First, gather performance and compensation data to determine where you are getting results from your spend. Then analyze that data to flag areas where your spending is not producing results. If the western region is producing twice the result at half the cost of the eastern region, for example, that might indicate an area of opportunity for optimizing incentive plans to either boost performance or more appropriately pay for performance.

Ensuring fair and competitive pay

Are you paying too much for a given job in a given market? Effectively managing pay scales, along with automated increases, is important for engagement, compliance, and cost control. It’s important to be able to analyze your pay scales for internal fairness and competitiveness against market benchmarks. You need analytic tools that enable you to dissect total rewards according to role, gender, age, location, and other factors.

Comparing your job grade pay scale against the market is helpful, but may be complicated by the fact that you operate in many markets. So it is important to be able to analyze pay data on a granular, local market basis. You may be paying more than needed for certain roles in certain markets. (One beqom customer claimed savings of $2.5M in the first year just from being able to implement Wage Control.)

Understanding the business impact of compensation changes

When you make changes to compensation plans, you need to accurately predict how they will affect your total compensation costs. But variable pay or commissions may complicate the results, because the costs will depend on business results. To accurately measure these changes, you need to create compensation cost estimates based on various projections of business results. That can be a two-way street, because how you structure your comp plans may influence business results. For example, if you incentivize your sales team to shift their focus to servicing existing customers, that may result in less net new sales.

Are your compensation systems ready?

Will your compensation systems help the business adapt to change? Or will they be a hindrance, limiting your ability to execute optimum strategies? A centralized total compensation platform can ensure that you have the data you need, and the tools to analyze it, to make critical decisions about pay, and help your business thrive in times of change.

Download our free eGuide, Agile HR: How to Adapt Strategy, Motivate Performance, and Optimize Comp Spend through Periods of Change, to assess your level of preparedness and see how a centralized total compensation management system can help your business adapt to change.

Download the Agile HR eGuide

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