Over the past two blogs, we dealt with different dimensions of Talent Management Systems (TMS), recruitment and performance management. The last part of this series will deal with the remaining dimension, compensation management.
TMS compensation management modules include a variety of components. Before jumping into this, let’s recall the basis for compensation management and TMS platforms in general: human resources.
Let’s look at the foundation for most organizations:
Employee Handbook and Corporate Policy: Creating employee and organizational policy are one of the primary responsibilities for any HR division. During my early workforce years, I received the “employee handbook” upon starting a new job and was required to sign a form affirming my reception of that document. This followed the business practice of informing employees about the range of entitlements and responsibilities; this also served as a basis to limit liability on behalf of the organization. With the advent of digital information and the Internet, much of this information shifted to on-line platforms and automated employee alerts to inform employees about changes in organizational policy; employees now are directed to follow a hyperlink taking to a site detailing policy changes and requiring them to check a box to connote that they have read the policy. In some ways, the employee handbook is annotated outline of a TMS. Some of this information, naturally, covers issues of compensation management.
Money for Nothing and . . . ?
With apologies to Dire Straights for riffing on the lyrics to their controversial 1985 rock song, money rarely is given for nothing; rather, for workers, employee compensation is best understood in the context of time management, benefits, employee classification, and work performance.
- Time Management: This is one of the fundamental elements in compensation management modules for every TMS. As with payroll management corporations like Paychex or ADP, compensation management modules can help corporations manage their bi-weekly or bi-monthly payrolls. As with weekly “timesheets,” employees are required to record online the number of hours worked, which then would be approved by their managers. Though such systems, employees can access information about how many hours they earned for the last pay period, for the past year, or earlier; similarly, they are capable of checking their rate of pay. Other information can be found, such as, IRS tax forms and the like.
- Benefits: As with salary, employees can use a compensation management module to check the status of the accrual of sick leave, vacation leave, and other benefits such as disability, health, and life insurance. The former elements of benefits naturally is directly linked into time management, since most employers—though not all—will link the awarding of sick and vacation leave with the number of hours worked. That is, for example, an employee would earn XX hours of sick/vacation leave for every eighty hours worked. Many employers, though, differentiate the rate of accrual based on the number of years of service at the organization: an employee having worked at the organization for ten years might accrue sick/vacation leave at twice the rate. Other benefits might include an employee’s enrollment in various types of insurance, especially health insurance. Generally speaking, the benefits tab of the compensation platform simply documents date and type of insurance and directs employees to the corporate portal for the insurance company. This also is the case for employees enrolling into retirement accounts via their employer. (It is rare these days, quite rare, when employees have pension plans to monitor.) Some employers will contribute a certain percentage of the employee’s income into that worker’s retirement account, which, for many, will only be available once the employee has been “vested” with a certain number of years of labor: with five years of labor, ½ the amount is vested; with ten years of labor, the entire company contribution is vested. Stock options and other ownerships mechanisms are benefits available to employees working for only certain type of corporations. Such benefits are frequently given to managers and executives as an incentive to accept employment and/or maintain corporate loyalty. Increasingly, though, such options are available to employees at all levels. In fact, numerous corporations are founded upon the principle of employee ownership.
- Employee Classification: The classification of employees is an element initially linked with recruitment and subsequently linked with performance management. Employees of all sorts are organized into job types, which are grouped into job categories. For example, in the administrative group, there may be job types such as clerical assistant, human resource technician or payroll administrator. In the operations group, there may be numerous sub-divisions based on the variety of operations; in this regard, there may be a single job type that cuts across the different sub-divisions, such as technician, senior technician, quality control analyst, et cetera. Frequently, corporations will create unified compensation and/or salary ranges for a single job type with a clearly delineated series of steps within a given level. For example, an employee may be classed as a Senior Technician Grade 10, and within that specific grade there will be numerous pay “steps.” Grade 11 for the Senior Technician generally will be at a higher pay level, and an employee’s elevation to that higher grade almost always is based on performance management. Similarly, an employee movement from one job type to the next is based on a managerial mandate or an external/internal recruitment process. Time management, benefits, and employee classification directly factor into corporate overhead and are used in real-time analysis about project budgets and timelines.
- Performance Management and Compensation Management Linkage: As discussed in the previous blog, performance management is an essential element for corporate and project management. Assessing employee performance not only is useful for meeting contractual responsibilities but also maintaining and improving corporate efficiency and morale. If employees do not see a direct relationship between their work performance and their paycheck, they are less likely to be vested in the work no less the corporation. As such, many corporations have annual if not annual and mid-year assessments. In addition to pay increases via employee classification, some organizations provide additional mechanisms for compensation.
- Work Bonus—organizations generally provide work bonuses in two ways: discrete, specific work performance and yearly awards. In the former category, managers are often given incentives to complete contracts in advance of deadline and under budget. Non-managerial employees most commonly receive work bonuses in the context of overtime pay (which is mandated in every state). End-of-the-year bonuses are an alternative profit-sharing mechanism granted by organizational executives to “share the wealth” and to foster morale. This latter type frequently is utilized to reward dedicated and prolonged work over the course of the year.
- Employee Rewards and Recognition—a similar type of compensation is for employee rewards and recognition. Such is granted by management and executives for exceptional employee commitment and work for a given project an/or period. While without a direct financial dimension, the nature of such compensation should not be undervalued. While rewards and recognition are clearly valuable in the context of employee morale, they are of particular value to the employee in the context of career development. A resume filled with a record of steady work and rewards/recognition is more likely to stand out than those without such.
TMS in Corporate Perspective
Compensation management, as with the other modules in a TMS platform, must be understood in the larger corporate context of budget allocations and planning. None of the aforementioned TMS modules operate in a vacuum and generally operate in a dynamic fashion with the others.
Let’s look at a couple of examples:
- Sick Leave and Vacation Pay: This element would seem to be very basic and straightforward, but it is not. Imagine this: a large corporation has thousands of employees, each of whom has a specific number of accrued sick leave and vacation pay. However, that accrual of leave is not just numbers but directly translate into debits on the corporate ledger. It is for this reason that the majority of organizations have a limit for the amount of hours and the length of time that leave hours may be saved. This leads to the well-known “use-it-or-loose-it” dictum. Such dynamics then create a feedback loop into human resource policy as noted above.
- Contractual Requirements: While not discussed specifically in this series of blogs, learning management is a key element in contract competition. Many RFPs (Requests For Proposals) have specific mandates to have workers with a certain level of education and/or training. Thoughtful executives will be able to analyze the status of their workforce and determine corporate need for educational planning in the context corporate growth.
Talent Management Systems are integral parts of any organization. While technology garners a great deal of attention, the workforce remains the backbone of the modern corporation. TMS platforms empower managers and executives to make the best use of its human resources and plan for the future.