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Managing payroll has long been viewed as an administrative task, time-consuming and focused on ensuring that everyone is paid correctly and on time. In fact, in the American Payroll Association’s most recent annual study, the main metrics tracked for payroll performance are payroll cost per employee, payroll processing accuracy rate and dollar value of overpayments – all of which focus only on cost or accuracy. So payroll management is rarely viewed as having any strategic value to the business and typically is assigned a low priority in finance, HR and payroll departments. The payroll process is elevated in importance only when errors are made that result in people being paid or taxes being withheld incorrectly.
That perspective is changing now, as human capital management (HCM) plays an increasingly critical role in attracting and retaining talent and as processes and information become ever more interconnected. In this new environment, payroll management has an enhanced role. As a part of the system of record in every company, payroll data can be connected to information in core human resources management, workforce management and talent management systems to help create a more complete view of human capital for executives and managers of organizations.
In addition, its history conveys on payroll management a unique status in human capital management. Having found it too cumbersome as an internal system, many organizations outsourced their payroll functions to various providers. Now, however, with the rise of easily accessible cloud computing that does not require significant in-house administration, many are re-evaluating payroll as a process that can be integrated with other related ones in a cloud-based HCM strategy. Doing so adds significant value in that both payroll process and payroll data then are connected to the unified HCM solution, enabling employees, managers and executives to use both in ways they have not been able to before – such as streamlining the pay-for-performance process. And with the rise of powerful suite-wide analytics tools, organizations can do much more useful analysis across all HCM data, including payroll, and use the results as part of compensation management efforts to make better decisions. Our most recent benchmark research into compensation found that 69 percent of organizations identify payroll as the number-one operational system to integrate. Further, our research found that many organizations place a strong importance on the compensation process, which is closely tied to payroll, to drive efforts to develop successful pay-for-performance and talent management initiatives across their companies.
Due to the relative novelty of this advance, the market today lacks empirical information to guide organizations as they seek to evaluate optimized payroll management tools and discover best practices to integrate them with the rest of their HCM tools. There is a need for information to understand the market requirements of businesses of different sizes as well as across industries. Filling this void is the focus of our upcoming benchmark research on evolving payroll management, which will explore organizations’ payroll management choices and assess their competency and maturity.
Successfully implementing optimized payroll management business initiatives requires an in-depth understanding of the options available and the people, process, information and technology issues that must be addressed. In our unique benchmark research we will analyze all these dimensions of how organizations are currently using their payroll systems and to what extent and in what ways they are complementing or competing with human resources management, talent management and workforce management applications. And it will identify benefits that organizations are realizing from the use of these new tools as well as issues they have encountered.
We will launch this benchmark research project into evolving payroll technology, processes and information management shortly. As the results become available in coming months, I will be sharing here on my blog some of the most interesting insights the research uncovers on organizations’ priorities, issues and key needs when evaluating payroll management products. I will also be assessing providers’ offerings to see how they are maturing and how well they are meeting the needs of a broad range of organizations of differing sizes and in specific industries. Be sure to keep a eye on this space in the coming months to see some of what our research uncovers as payroll is a key component of my research agenda for 2013!
VP & Research Director
We have just released our 2012 Value Index for Total Compensation Management (TCM), in which we evaluate the competency and maturity of vendors and products. Our firm has been researching this category for many years, and our latest benchmark research in total compensation management found some improvement among applications in a field where many organizations still use outdated applications to manage an area with large financial and human capital impacts.
I am excited to bring this research to market again this year. No other research firm performs this level of analysis or follows it up on a regular basis. The Ventana Research methodology utilizes a request for proposal and assessment approach, and each value index takes six months to complete; unlike other analyst firms, we look at the product details that have the most importance to successful adoption and use. In the process we identify best and worst practices that further refine how we assess technology vendors in this category.
Our research, including this Value Index on Total Compensation Management, looks at the complete range of aspects of compensation, from types of pay and benefits to the processes required to manage them and communicate with workers. We examine role-based requirements for an organization, as well as integration with performance and talent management. We look closely at the key product areas – usability, reliability, manageability, adaptability and capability – and also the customer assurance areas of validation and TCO/ROI.
A lot has changed among TCM suppliers in the past year. For instance, Plateau, which we rated Hot in 2011, was acquired by SuccessFactors, which in turn was acquired by SAP. Now SAP is focused on using SuccessFactors offering and placing the product investments on this offering. Taleo was acquired by Oracle and its product was put aside in favor of the newer Oracle Fusion Compensation Management.
This year we found many talent management vendors claiming to manage compensation, but some provide only a place to enter current compensation data for use in performance reviews or provide limited capabilities. These vendors lack a total compensation management approach that can be used across all roles – administrator, management, manager and employee and support the processes, communicated and integration required for meeting these needs and support of talent management.
Our Value Index methodology assesses vendors across the seven categories noted above, each weighted according to its priority to buyers, and sums the results to 100 percent for scoring purposes. We placed a heavier emphasis this year on usability, reliability and manageability, which organizations indicated in our benchmark research are increasingly higher priorities. You can read the details on our methodology and process in the full TCM Value Index report.
Our analysis in the 2012 Value Index found six vendors that provide robust offerings. All six are rated Hot, which is the highest value level and demonstrates maturity of offerings. SuccessFactors ranks at the top, closely followed by Peoplefluent, then SumTotal Systems, Oracle, Excentive and ADP. We noted in our analysis that SuccessFactors and Peoplefluent showed rapid product advancements every quarter, and their focus on usability, manageability and reliability helped raise them above last year’s ratings. Oracle is a vendor to watch, with its latest release of Oracle Fusion Human Capital Management, which includes compensation and is available both on-premises and in the public cloud. New to the Value Index is Excentive, which is dedicated exclusively to total compensation management.
We take a lot of pride in our Value Index, and we believe it is cool to be a Hot vendor. The competitive market for these applications comprises a very mature set of products. Congratulations to the vendors that survived our detailed assessment processes and granular analysis, which represent how organizations assess and select vendors. If you want some further information, you can download the executive summary. We look forward to offering continued guidance to buyers on this critical application category for HR, finance and operations professionals who need to engage and retain employees by taking a comprehensive approach to compensation management and applications.
CEO & Chief Research Officer