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Now available from Ventana Research is our Value Index on Total Compensation Management for 2014.  Total compensation management directly addresses one of an organization’s largest investments – employee pay. As such it is a critical activity for supporting other human capital management and talent management processes.

VR_TCM_VI_2014Our Value Indexes are informed by more than a decade of analysis of how well technology suppliers and their products satisfy specific business and IT needs. For each we perform a detailed evaluation of product functionality and suitability to task in five categories as well as of the effectiveness of vendor support for the buying process and customer assurance. In this case the resulting index gauges the value offered by each vendor and its products in supporting total compensation management, which is necessary for running an organization efficiently and managing its largest controllable expense.

Total compensation management has evolved significantly over the four plus years in which we have published a Value Index on the topic. From both conversations with reference customers for this report and analysis from our benchmark research on this topic we conclude that it is still evolving as practice in organizations today. The research shows that spreadsheets are still the primary tool for compensation planning in one out of four (26%) organizations and used often by an additional one-third (35%). But it also shows that others use stand-alone compensation management products and still others have integrated the process and technology within a human capital management application suite. Regarding the latter our benchmark research shows that three in four (76%) participating organizations said that it is important or very important to have compensation management and talent management systems integrated; in addition lack of integration to talent management is the most widespread impediment to successful compensation management, selected by two-third (66%) of participants.

For compensation management to be fully effective in today’s organizations it also must include several next-generation technologies in use in other parts of human capital management. The most important of these is analytics that help managers make better compensation decisions. The increasing importance of compensation analytics is evident in our human capital analytics benchmark research, which reveals that the metric most often used by executives (75%) today is compensation.

Mobility and collaboration are becoming important to total compensation management.  Mobile capabilities are found in six of the compensation management products we reviewed for the Value Index; our human capital analytics research reveals growing adoption: one-third  of companies are using mobile technology for these analytics today, and more than half (52%) intend to use it. Collaboration, though less widely adopted, is important in larger organizations to enable managers in various roles to comment on the correct total compensation for their employees.

The 2014 edition of the Total Compensation Management Value Index evaluated both products that are part of a larger suite of talent management products, which was the most common type, and others that stand alone. In general, we find several benefits to a suite. Among them are analytics integrated with other talent management applications, a common user experience and centralized administration, which make ownership and adoption somewhat easier for the customer.

TCM_2014_Weighted_OverallAmong the compensation management products we evaluated, all cover core compensation management of salaries or hourly wages as well as merit pay, bonus pay and some kinds of incentive pay. Functionally, the differences among the nine products appear in areas such as support for complex plan rules, the number of geographies covered and the ability to support various types of compensation plans (for example, focal vs. anniversary plans) as well as the implementation of next-generation technologies. Some products offer more effective application management tools and better product documentation for support and business case development. While we recognize that some organizations may need only basic salary or hourly wage capabilities, we believe that many organizations with 1,000 or more employees will require more advanced functionality.  Therefore we based our overall assessment partly on the array of capabilities that comprise total compensation management.

Based on these evaluation criteria, the top vendor in our 2014 Total Compensation Management Value Index is SAP SuccessFactors, followed closely by PeopleFluent. This finish mirrored the ratings in the 2012 Total Compensation Value Index. Eight of the nine vendors in this year’s Value Index we rated Hot; this close grouping indicates the general maturity of this market. In this year’s Value Index following the two leaders are those also rated Hot who are: Oracle, Towers Watson, beqom, IBM, Decusoft and SumTotal Systems, and then ADP who was rated Warm. Two new vendors to this Value Index are Decusoft and Towers Watson, and then beqom who was previously known as Excentive.

In today’s competitive business and employment environment, more companies see compensation as a differentiator for their employer brand and want technology that can help them advance their compensation programs to attract and retain top talent. Next-generation technologies such as mobility and analytics enable employees to understand the total value of their compensation packages. As compensation plans become more complex, the need for capabilities like integrated budgeting and modeling become greater so finance departments can ensure that plans adhere to budgets. Furthermore, integrating compensation and performance management, as well as other key talent management applications, helps businesses judge and motivate their top performers. If these critical issues affect the performance of your own business, I urge you to utilize our 2014 Total Compensation Management Value Index for insights on how to address them most effectively.

Regards,

Stephan Millard

VP & Research Director


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!

Regards,

Stephan Millard

VP & Research Director

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