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3 Compensation Software Considerations for the Mid-Market

from  July 27, 2022 | 4 min read

Compensation management software considerations differ vastly depending on the size of the business and the number of employees and users. Businesses in the mid-market segment generally have between 100 and 1,000 employees. They represent around 200,000 companies in the U.S. with annual revenues totaling over $9 trillion, and these organizations employ 50-55 million workers. Notwithstanding the robust underpinnings enjoyed by many of these enterprises, this group has historically been marketed various degrees of scaled-down HCM software solutions.

This practice is a result of some commonly held perspectives about mid-market companies, including:

  • Significant budgetary constraints force a “good enough” automation strategy vs. something more transformational.
  • A typical lack of in-house IT resources to support deployment or periodic product upgrades, particularly when other IT priorities are deemed more critical.

The latter point made it necessary for HCM software vendors to pre-configure various product usage rules, which can reduce flexibility in aligning software with business needs. Alternatively, vendors can simplify the configurability toolsets delivered as the more sophisticated ones are usually not designed for business area admin users.

One of the main HCM functionality areas where this dynamic has impeded business value for customers is Compensation Management software. Pay practices - and more broadly speaking, total rewards - are universally recognized as one of the most important drivers behind the reasons why talented resources join and then stay, remaining engaged and productive.

The notion of scaled-down functionality and sophistication, as it relates to compensation management solutions, often means a lack of flexibility to have the system do whatever it needs to do without manual workarounds, supplemental tools such as spreadsheets, or requests being made to the IT department or vendor for situational support. This naturally leads to a higher total cost of ownership since more resources will be needed to run the compensation management process end to end for all workforce segments and rewards-related use cases and can also result in payout errors which are costly – to the employer’s reputation as well.

Take the case of an organization trying to retain its competitiveness in the labor market by offering a new compensation plan to salespeople or executives, but the plan’s eligibility or calculation rules are not so straightforward. Without the ability of the customer’s comp team to define and configure whatever is needed, this can result in compromising the plan’s intended outcomes. It can 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.

The 3 Considerations

1. System Architecture

Conversely, if that new compensation plan can be quickly and thoroughly defined in the system without an IT department, outside consulting, or vendor support, or similarly be able to update an existing plan with new parameters, then a mid-market company can potentially avail itself of other sophisticated capabilities the compensation management software provides as well. These might be related to leveraging compensation analytics, doing what-if planning and modeling, or importing compensation market data to better guide pay decisions.

The reason why these capabilities that are usually associated with compensation management products for the up-market segment can be enjoyed by more organizations is simply that there are more products available today that reflect the most modern practices in enterprise software development, including isolating the three main software design components: business logic, the user experience or “UX,” and the underlying database.

Without question, this makes for a product that is much easier to configure and mold or adapt to each customer’s unique business requirements, and the shaping doesn’t need heavy technical lifting. More often than not, we’re talking about English-like statements, drag and drop interactions, and very straightforward guided wizards.

One final point on architecture: An open API framework makes all the difference in the world, given the fact that most deployments of compensation tools involve interfacing 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 the impact of changing compensation guidelines or plans
  • Personalize compensation packages to provide maximum value

2. 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 installed software (due to factors such as not having customized source code and code extensions for both customer and vendor to deal with) is no longer such a differentiator for software vendors marketing to the mid-market. What is a clear differentiator, however, is the extent to which the vendor has formalized and optimized its value realization program for customers; and value realization starts with the vendor partner having a very 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 supported by the vendor, are a perfect way to gauge the depth and breadth of their understanding.

3. Pricing Transparency and Clarity

Finally, as most people know who have evaluated enterprise compensation or other HCM software, it can be challenging to fully understand pricing, not just the “PEPM or per employee per month subscription cost, but everything else that can enter the picture. For example, is there a separate charge for data storage or the number of users, or what will the vendor charge to adapt its API framework or help you import market pricing data?

When extreme pricing transparency and clarity exist, 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, in fact, participate in all the benefits that normally accrue to large market companies. 

How can Unit4 help you?

Unit4 Compensation Planning provides your business with a unified front for compensation through which you can plan, make, and communicate pay decisions according to multiple compensation plans, deliver clear, accessible information around pay decisions and opportunities, and create a single source of truth for all compensation planning data management.

To learn about what our solution can bring to your firm, please click here.

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Barkat Ali

Global Head of Product (Compensation) at Unit4

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