Anyone leading a compensation team or function is keenly aware that ‘comp planning’ activities can take the most time, and surrounding complexities can be plentiful. This is largely due to featuring the most ‘what if’ iterations, and involving the most reviewers, approvers, and communications protocols, all governed by extreme data confidentiality and sensitivity. These aspects speak to process complexity, and that’s before we bring in many other dimensions. These include new or changing comp elements, eligibility rules, salary increases and total comp guidelines, and the processes needed for collecting, matching, and incorporating market pay rates. Additionally, adjustments to market data guidance might be necessary to reflect the pressing or urgent needs of a business, such as when internal/external skills shortages exist that require paying above market rates. And, though not always getting the attention it deserves, the tail end of the comp planning process can easily introduce unforeseen execution risks related to ensuring the right people are reviewing, authorizing, and being notified throughout the process.
The complexity of every one of the above steps is often further heightened by currency conversions, the presence of equity-based compensation, fluid organizational reporting and the possibility of having to support different comp plans, or even policies at the business unit, region, and workforce segment level. Of course, all these dynamics highlight the need for compliance monitoring at nearly every step, particularly given the changeable nature of all potential inputs to comp planning. And it’s not just organizational structures and reporting lines that might be fluid. Nearly every calculation element, policy, practice, and compensable factor can be subject to change, often more than once!
Bonuses can be a major component of total comp, and this comp element has its own surrounding complexities as well. These often relate to bonus (or bonus pool) funding levels which can fluctuate year-round. Moreover, senior executives can be assigned their own bonus pool, and others earning enough to qualify for deferred compensation payouts, or perhaps having contractually guaranteed bonuses (e.g., from having to match outside comp) might also be assigned to an appropriate group. The reasons for segmenting employees into their own pools include ensuring all contractually based comp commitments (in writing or not) are properly accounted for, and the desire to make it easier to see aggregated pool allocation percentages and confirm they make sense given various lenses applied. Finally, the fact that someone could be included in multiple bonus pool groups, or that organizations frequently deal with multiple bonus types, are just other elements in a long list of potential complexities at the heart of compensation planning.
Continue reading the full article here: Compensation Planning: Where Complexity Meets Opportunity