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The Importance of Automating Merit Compensation

THE IMPORTANCE OF AUTOMATING MERIT COMPENSATION

By providing incentives and rewarding performance, Merit Compensation initiatives can drive desired behavior and help companies achieve their strategic objectives.

Merit Compensation takes a number of forms, including:

Merit Compensation initiatives can be tailored to individuals, specific groups, or even entire organizations.

Merit Compensation

Employee performance plans for salary, promotions and/or bonuses

Team performance bonuses to reward the accomplishment of project goals

Executive bonus structures to ensure accountability for organizational goals

A company’s Merit Compensation process affects the entire organization. Whether it’s developing the plan, setting the objectives, implementing the reward structure, managing the employees and teams, or, allocating the actual awards, every part of an organization is involved in the merit compensation process.

Understanding how each department is impacted can help to ensure that merit compensation practices are optimized to meet the needs of the full organization.

Stakeholders Through The Entire Organization

HUMAN RESOURCES (HR)

Strategic HR departments create compensation programs that reinforce a pay-for-performance strategy that drives all levels in the organization.

THE IMPORTANCE OF AUTOMATING MERIT COMPENSATION

MANAGEMENT

C-suite executives and management teams establish the desired behaviors by setting company strategy, identifying market and product priorities, then reviewing the plan’s outcomes.

FINANCE

Finance departments track financial payout metrics such as revenue, margin and profitability, accrue the expected pay-for-performance payout, track the actual cost of compensation, as well as conducting financial analysis and forecasting future revenues.

ALL BUSINESS UNITS

Employees in all business units – including C-suite executives setting strategy, managers leading teams and front-line employees executing the plans – are participants in merit compensation plans.

To fulfill its purpose, Merit Compensation relies on effective communication.

Merit Compensation only works if all participants understand and buy into the plan. They must understand the plan’s structure, rules and parameters, and have ample knowledge to successfully achieve the performance levels necessary to reach the incentive rewards.

To keep the process working effectively, companies must clearly communicate the fundamentals of:

Effective Communication - An Essential Part Of Managing Merit Compensation

THE IMPORTANCE OF AUTOMATING MERIT COMPENSATION

Incentive Compensation Management (ICM) technology provides automated workflow that facilitates improved communications between stakeholders. Specifically, an automated process provides an integrated internal workflow between HR, Finance, Executives and Management, and the various Business Units.

For example, an automated process facilitates communications benefits such as:

Automated Workflow And Enhanced Communication

Company strategy and objectives

Individual or team goals

Reward structure

Methods of calculation

Potential payouts

Timelines of the merit compensation plan

Worksheet approvals, adjustments, comments and overrides

Alert configuration

Automated bonus suggestions, ranges and budget allocations

Monitoring the status of approvals and budgets

The ability to manage “Batches” of worksheets

An automated workflow also facilitates other aspects of financial management and strategic planning.

THE IMPORTANCE OF AUTOMATING MERIT COMPENSATION

Greater Forecasting And What If Analysis

Best Practices On Effective Communication And Merit Compensation

BETTER REPORTING AND FORECASTING Leveraging ICM, the strategic planning and goal-setting process is data-driven.

IMPROVED ANALYTICS ICM enables effective reporting, analytics that will facilitate monitoring performance and evaluating the effectiveness of merit compensation.

RELIABLE AUDIT TRAILS With an automated workflow, organizations can rely on the ICM system for producing accurate, reliable audit records.

Effective communication will improve the flow of information between participants and help employees internalize the merit compensation plan. As the Merit Compensation plans are rolled out, companies must practice effective communication to share information about the plan’s rules and parameters.

As a best practice, Merit Compensation should be a regular part of organizational communications, including:

THE IMPORTANCE OF AUTOMATING MERIT COMPENSATION

Manager-employee meetings and/or performance reviews

Company intranet

New staff orientation

As an agenda item at staff meetings or all-hands events

All plans should have a starting date and ending date. Otherwise participants will come to expect it as part of their ongoing compensation structure.

Communicating the merit compensation plans benefit from the appointment of a senior-level champion who openly touts the initiative. By seeing a senior person adopt the plan, employees are more likely to accept it. Employee buy-in also increases if well respected, non-management members help communicate the plan to their peers.

Evaluation is also critical. To determine if a plan was successful in meeting its objectives, it must be reviewed. Review the outcomes, compare against historical baselines and start-of-period numbers, and then compare with expected attainment. An automated system makes this process much more accessible.

Conclusions

Merit Compensation only works when everyone understands and internalizes the plan.

How do you keep everyone informed and everyone pointed in the right direction?

You communicate effectively, ensure everyone has access to the Merit Compensation process, and leverage the automated workflow to keep people informed, engaged and focused on the company’s overall goals.

To learn more about leveraging automated workflow for Merit Compensation, visit www.iconixx.com

3420 Executive Center Drive, STE 250 Austin, TX 78731877-ICONIXX www.iconixx.com