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SAP Compensation Management: Pay it Forward

A common – and smart – business strategy proposes that you should reward the behavior you want, and discourage the behavior you don’t. As smart organizations use more complex incentive strategies to effectively attract and retain the best talent, these organizations have seen their reward and compensation structures multiply and grow in complexity. Managing these evolving compensation practices is almost impossible, especially for mid to large sized companies. Therefore, compensation management tools, like SAP HR Enterprise Compensation Management, are growing in popularity due to their ability to support a wide range of compensation processes.

There is fierce competition to attract and retain talent, and companies are desperate to implement a solution that will solve their compensation challenges. Before jumping into implementing a compensation management technology, a number of strategic and tactical questions must be properly addressed. We sat down with Clarkston’s HCM expert, Guru Sundaresan, to learn about his experiences implementing SAP Compensation Management.

If you could challenge organizations to think about only one thing before embarking on their SAP Compensation Management journey, what would it be?

Before starting a compensation management implementation, an organization should have a clearly defined compensation management strategy. Although that sounds incredibly obvious, I have worked with many organizations that have lost sight of their core strategy due to the growing complexities of their business and reward structures. And many times, it is the implementation of a system that uncovers this.

Without a clear strategy prior to initiating a compensation management project, strategic decisions are made within the confines of the tactical project. Project teams are often forced to press company leadership for strategy decisions and/or strategy changes to simply move the project forward. Consequently, the project teams and technology drive the strategy, rather than the strategy driving the processes and system design.

Is there a hot trend in compensation management strategy that organizations should consider?

Where I’m seeing the most debate and excitement is around pay for performance, where employees’ compensation is based on performance against defined goals. Many organizations I work with either partially employ a pay for performance strategy or would like to move to one, but they haven’t yet defined the details of the structure (e.g. timing, metrics, merit increases).

Embracing pay for performance can cause some pain, if not given the proper respect and planning. Project teams often start designing with SAP’s pay for performance functionality as a baseline. But when the organization realizes that many metrics are required for calculating and executing pay for performance compensation, and they don’t have these metrics, the design often ends up being either “forced” or abandoned altogether. I can’t stress enough that organizations need to carefully assess their compensation strategy before an implementation. This will ultimately save time and ensure better outcomes post go-live.

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Tags: SAP