Is your compensation planning solution fit for purpose? 3 factors to consider | Unit4
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Is your compensation planning solution fit for purpose? 3 factors to consider

from  July 27, 2022 | 4 min read

Businesses in the mid-market segment generally have a workforce of between 100 and 1,000 employees. They represent around 200,000 companies in the U.S., with annual revenues totaling over $9 trillion. Collectively, these organizations employ 50-55 million workers. But despite its robust financial underpinning and despite being a huge market segment, this group has historically been marketed various degrees of scaled down HCM software solutions.

This underservicing is a result of some widely held misconceptions about the mid-market, including around major budgetary constraints that force a “good enough” automation strategy, and a lack of in-house IT resources to support a deployment or periodic product upgrades – particularly when other IT priorities are deemed more critical. This has traditionally led HCM vendors to either pre-configure various product usage rules – reducing flexibility – or simplifying their configurability toolsets.

There’s an argument that one of the main HCM functionality areas where this dynamic has impeded business value for customers is Compensation Management. Pay - and more broadly speaking total rewards - is universally recognized as one of the most important drivers behind why talented people join an organization – and why they stick around as engaged and productive resources.

Scaling down the functionality of the tool that controls such a vital part of your total employer brand proposition can result in a critical lack of flexibility – forcing HR teams to result to manual workarounds, an overreliance on spreadsheets. Over time, this leads to a lack of transparency and visibility over pay and compensation. This not only jeopardizes pay equity and employee engagement, but could damage your employer brand, and cause difficulties in attracting and retaining talent. It can paradoxically lead to a higher total cost of ownership – exactly the opposite situation that offering a scaled-down solution was supposed to achieve.

Take the case of an organization trying to maintain its competitiveness in the labor market by offering a new comp plan to salespeople or to executives – but without straightforward eligibility or calculation rules. An inability to define and configure their desired comp rules can result in radically different outcomes from those which they intended – for example with high performers going unrewarded or undercompensated relative to the average. It may also take longer to operationalize these requirements or have total confidence in how the system functions. And let’s keep in mind that “intended outcomes” can comprise a wide range of business benefits – some of which are highlighted below.

Therefore, when choosing your compensation planning software, you should consider the following:

System Architecture: If a new compensation plan – or an existing one requiring an update – can be quickly and thoroughly defined in the system without IT department, outside consulting or vendor support, then a mid-market company can set comp rules and expectations simply and focus on deriving greater value from the system’s other capabilities.

These might be related to leveraging compensation analytics, “what-if” planning and modeling, or importing compensation market data to better guide pay decisions.

Modern comp planning tools that are well within mid-market organizations’ budgets will generally be designed with 4 key principles in mind: Business logic, user experience or “UX”, and a robust underlying database, and open API frameworks. These design pillars make for a product that’s easier to adapt to each customer’s unique requirements – without much heavy technical lifting thanks to low-code customization options including English-like statements and drag-and-drop WISYWIG interfaces. Open APIs in particular makes all the difference in the world given that modern deployments of compensation tools involve integration with adjacent products.

Business Benefits of Compensation Management Software

  • Reduce financial errors including over-payments
  • Ability to attract and retain top industry talent
  • Ensure various aspects of legal compliance related to pay
  • Achieve a company culture with an emphasis on equity and fairness
  • Link pay with employee performance, value and impact
  • Be effective in planning, modeling and allocating labor costs
  • Minimize time spent by managers on administrative tasks
  • Predict impact of changing compensation guidelines or plans

Personalize compensation packages to provide maximum value

Value Realization: The fact that cloud-based, subscription, or SaaS-based software is almost always easier on the budget of mid-market organizations than legacy on premise is no longer such a differentiator. What is a clear differentiator, however, is the extent to which the vendor has formalized and optimized its value realization program for their customers. Value realization starts with a solid, detailed understanding of the customer’s business requirements – including data and process nuances and idiosyncratic or complex use cases. System demonstrations and setup activities the vendor participates in – as well as any “try before you buy” opportunities – are a very good way to gauge the depth and breadth of their understanding.

Pricing Transparency and Clarity: Finally, as anyone who’s evaluated compensation or other HCM software will know, it can be challenging to fully understanding pricing.  Not just in terms of the PEPM (per employee per month) subscription cost, but everything else that can enter the picture. As examples, is there a separate charge for data storage or number of users? What will the vendor charge to adapt its API framework? How about helping you import market pricing data?

When extreme pricing transparency and clarity exists, and the vendor partner is demonstrably committed to a value realization program, and the product is reflective of the most modern cloud architecture and system design, a mid-market organization and compensation department can successfully leverage all of the benefits of compensation planning software that normally accrue to large market companies. 

How can Unit4 help you?

Unit4 Compensation Planning is built specifically for the needs of mid-market organizations, providing your organization with the ability to plan, make, and communicate pay decisions in a single solution, define unique comp programs, policies, and compliance requirements, and gain insight into your organization’s remuneration structures to identify trends, issues, and opportunities through a single source of truth for all your pay data. Watch this video to learn how we can help your organization move on from spreadsheets or outdated software to streamlined processes, better pay decisions, and improved employee engagement and communications. For more information visit our product page or click here to book a demo.

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Barkat Ali

Global Head of Product (Compensation) at Unit4

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