Common challenges and issues in the Comp & Ben world - Comp&Ben Talks #1

In this episode you'll learn about:

• Why C&B typically needs cleaning up?
• Why it is important?
• Challenges
• How to achieve success in setting up Comp & Ben for success?

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Transcription

Bartek Podolski: Hi, this is Bartek Podolski. Welcome to Compensation and Benefits talks. This is an episode where we are going to talk about Compensation and Benefits (Comp & Ben) challenges. Today Magdalena Tur is with me. As a word of introduction, I’ll tell you more about myself. I am a CFO of GGS IT Consulting. We implement Compensation and Benefits solutions in large organizations. And Magda, could you say a few words about yourself?

Magdalena Tur: Hello everyone! Thank you for having me here. I’m Magda Tur and I work as an independent consultant. I support companies in the design and implementation of Compensation and Benefits solutions. But I also spent many years working as a consultant in advisory companies, as well as a Compensation and Benefits Manager in the business. So I know both perspectives, consulting and business.

Bartek Podolski: The idea of this podcast is that our listeners will get both perspectives, IT and business. The first perspective will be given by me as I have already implemented quite a few projects in the Compensation and Benefits area. Magda will present a business perspective. I guess it should be interesting for everyone to listen to us.

In this episode, we are going to talk about Compensation and Benefits challenges in today’s world. Those challenges I have already divided into three areas. The first one is related to operations, meaning daily work. The second area is related to IT - the area where I particularly feel strong. The third area is related to people. Magda, would you agree to this division?

Magdalena Tur: Yes, I think this is a very good idea. Let’s check all the perspectives that we have. But you can already see that the problem is complex.

Bartek Podolski: Indeed, it is. Starting with the challenges related to the operations… When I was thinking about this topic, it came to me that it is also related to IT. However, right now let’s focus on something else. When I look at the Compensation and Benefits and other departments in large companies that we work with, I have a feeling that there is a notion of lagging behind the Compensation and Benefits topics. It seems like other departments, especially those that directly generate money for companies, are more important (for example, if there is a production company, they focus on production; when the company operates in retail, they would focus on that; and literally there is no company that has a focus only on Compensation and Benefits). It seems like the Compensation and Benefits department is always second or third in line and they actually do not get enough attention. So I think they are being lagged behind compared to other departments, especially in large organizations. It has many reasons, I believe. One of them might be IT infrastructure. But also some issues happen in the operations. What do you think about it, Magda?

Magdalena Tur: What is the reason for lagging behind the Compensation and Benefits from the operational perspective? First of all, I am aware that it may happen. As you said, this function is not very much exposed in the company. It happens backstage. We also need to remember that nowadays the entire HR department transforms an approach - right now it is based more and more on data. It was not a typical approach for HR for many years. Today we all know that this is very important but the transition is still going on. Now, it requires a little bit of a different skill set than it was needed before - people need to recognize the importance of that.

Bartek Podolski: Sorry to jump in, but when you were talking about transformation, it kind of rang a bell immediately to me. The data-driven or fact-driven approach in Compensation and Benefits means that HR is becoming more, let’s say, based on facts and data rather than feelings and soft skills, correct?

Magdalena Tur: Yes, I think this is a good description of the current situation. However, the Compensation and Benefits is a function that is data-driven from the very beginning. To be honest, it should have already been based on that, but still, it is not a standard. In the past, companies were not fully aware that they needed to set up such a function within HR, as you mentioned. As a result, sometimes we are missing the right people in the department. Currently, it is quite expensive to attract them from the market. What is more, you need to set up processes that will cooperate with a data-driven approach. It is not always easy. On the contrary, it generates a lot of work not only for the HR department but also for managers. Somebody needs to produce those data, somebody needs to collect them, somebody needs to clean them, somebody needs to present them… We just need to change the approach on how we perceive all HR processes. This is the first aspect. The other point is that we do not have people. Sometimes no function could handle Comp & Ben tasks in the organization. Many times, I encountered the situation that a large organization did not have a dedicated function for the Compensation and Benefits. Another issue is the way of thinking about remuneration - most of the time people are very insecure when you want to implement changes. Frankly speaking, people are afraid when it comes to money, they often wonder what would be the impact on their performance, how they would be assessed, would it be a fair assessment, etc. There is a lot of work to do before implementing any solution. If you do not prepare the organization wisely, if you do not emphasize the function of Compensation and Benefits, it will be very hard to start with a revolution. For sure, you will meet with reluctance in the organization...

Bartek Podolski: Especially, because in most of the companies the Compensation and Benefits are done yearly. What I observe is that it is quite easy to do something year-to-year. My experience from the Compensation and Benefits is that only the period between September and March is very busy. For this reason, nobody wants to change anything during that time: they are very focused on having everything prepared. After March, everyone feels more relaxed, people go on holidays because they feel like they need a break. Whereas, it should be a time when you start thinking about changing the process. If you want to start thinking about changes when the process kicks in, it is too late. I think this is hard for the Compensation and Benefits leaders to push for the change in times when people are relaxed after closing the cycle (that was done fairly well). And if you do not convince people, you will end up with the same process the next year. With such an approach nothing will change for years.

Magdalena Tur: Indeed, people get used to the current status, managers get used to the situation that is quite convenient. It may work in some ways for some time, but you are not pushing the situation to the new stage. Sometimes you do not do it because you know about the additional work while starting the project. On the other hand, every year the process is getting more and more outdated which makes the change even harder to implement.

[8:48]

Bartek Podolski: In your opinion, what needs to be updated? What are the things that are making the Compensation and Benefits system outdated?

Magdalena Tur: While working in the Compensation and Benefits, you should be aware of the business goals. All Compensation and Benefits policies and strategies should be adjusted to them. If you do not do that and every year you are doing the same (for example, if the distribution of pay raises is the same every year), later it is very hard to change the approach and communicate it effectively to the people. People may not accept a change such as distributing payments based on the performance of some particular business needs. People may not understand that they will not get the same salary as they received before. People do not like such a situation. It is easier to do small steps and at the beginning educate managers and other employees about the company's policy. But I agree that it is hard to start… And as you already mentioned, people are exhausted after the six months marathon related to the Compensation and Benefits affairs: September is a month when salary data is being published in the salary report, then there is a salary review process and bonus payouts period. But I think it needs to be more regular, maybe on a day-to-day basis.

Bartek Podolski:  Somehow I feel like it might be possible with IT systems. Now companies are able to collect more data, analyze it better, pay for the performance more accurately, and measure more precisely the impact of the actual work on the performance and KPIs. All that may be a change for the company. Especially for those organizations where for many years extra money was paid only for seniority (the longer you work for the company, the more money you get). I watch a lot of Jack Welsh - he is one of these people I admire. And he says that people should be paid differently and their salary should be based on what they are bringing into the company, on what values they are producing for the team and the whole organization. Now, with the IT landscape, we can measure such indicators better. Actually, if the Compensation and Benefits are being lagged behind and many things are still done manually or in Excel or are not done at all, it is still very hard to analyze anything. Especially when you think of the obstacles such as not having the right people from the market. When you try to hire employees for Compensation and Benefits, not many people realize that such a position requires analytical and mathematical skills. I think that people are convinced that only soft skills are needed for such a position, while it should be a combination of both, analysis and soft skills.

Magdalena Tur: It is definitely true. Good infrastructure or an idea on how it should look may help a lot. It shouldn’t be an extra task for you to collect data, to perform all operations using data from the system, to present data to the managers - it should be just a piece of cake; therefore the processes should be changed. It is very hard to prove that changes need to be made while there is no proper data set supporting daily operations.

Bartek Podolski: It might be a good question to ask: why should we resign from the annual performance review? I see a trend that annual performance reviews are seen as outdated. But then some companies think about how they would make a proper performance review if no proper indicators or rules are explaining the reason for, for example, salary increase. However, I think that it is not easy for companies to implement such a change. But in general, change is not easy...

[13:29]

We already spoke a bit about the operations. Do you have anything else to add or shall we jump into another topic?

Magdalena Tur: I think we are good here and we can move on. Let’s check the IT perspective, especially because it is closely combined with operations.

Bartek Podolski: I just wanted to mention here that the Compensation and Benefits is lagging behind also from the IT point of view, especially in terms of systems and infrastructure. Like you said before, the Compensation and Benefits is not very much exposed in the organization; therefore, it is not easy to show the value of new systems, robots, and other IT solutions. I think it is not easy to prove the return of investment in the Compensation and Benefits because it is more about the soft skills. I would compare it with going to the soft skills training. When I go for such training, I never know what it brings to me. It is very hard to measure, but when I do a fair amount of such trainings, you may see a quality change in how I behave, what I think, and how I perceive the world. I guess it is pretty similar to investing in the Compensation and Benefits IT solution: it is not easy to measure it, but when you implement a change, you see a difference in the company. Indeed, it is hard to quantify, but you can see it in the quality.

Magdalena Tur: I think you can measure it at the end of the process. And it is a problem, especially when you start such a project that is seen as an investment. In the beginning, you are in the dark place, where processes are outdated, where people are not convinced to do anything, when you are not sure if the project will be a success. You are in a place where you want to buy something new, you want to invest time and money but you are not sure if it is very needed (maybe you have doubts and thoughts that everything is fine as it was before). But without making any steps forward, you are not able to get to the new stage of gathering data and just having a better process. It is worth remembering that managers are doing a salary review only once a year. Within twelve months of work, they recruit people, negotiate salaries but do not manage monthly payments. Frankly speaking, they do not focus that much on the people and their salaries - they think of it only once a year. This situation will not change because managers receive spreadsheets only once a year or when the situation is being monitored only twice a year. If managers have full access to the system and they can collect data and track changes in real-time, they are also much more aware of the current situation and they know whether a reaction is needed (if the situation is good or not; if they need to raise something or not). This is a huge advantage of an online system that provides up-to-date information based on data collected automatically. Such a system does not demand extra effort from managers either.

Bartek Podolski: I understand it completely. Many people, including myself, perceive processes done once a year as a necessary evil. Usually, there is an approach like: “oh yeah, I need to do it only once a year so let’s do it and forget about it for the next year. Then the next year comes before you know it and we do it again…”. There is not enough thinking into such a process. Like you said, accessing data more often or checking them any time of the year may actually also help in managing the team, in understanding current mood among employees, in planning work better, in checking how people’s compensation is related to the prices on the market and how the salaries are related within the team. Another thing worth discussing is about the Compensation and Benefits specialists and their need of using the system. Managers may review salaries once a year, but employees working in the Com & Ben department may use it for at least half of the year or even all year round. For them, it is not something used only once a year. In my opinion, people do not realize how much work is required to prepare a review in a company. I am talking about a salary review, a bonus review, and all other reviews. When I observe how much effort is needed from the Compensation and Benefits department, even when they have a proper system and other tools, they still need to do a lot: starting from setting it up, adding parameters and levels, budgeting, verifying if everything works correctly… In fact, it is a lot of work that is unnoticed by most employees from the company (especially outside of HR).

Magdalena Tur: What is more, nobody expects such an amount of work in the HR department. Indeed, all these things need to be done during the year when you are a Comp & Ben specialist. If you do not have sufficient tools, you have to prepare everything in Excel. It means that you need to be an expert in spreadsheets with a good knowledge about how to combine all files and check the quality of the data, and so on. If you work on this alone, you need to write some macros that will help you. It means that you need to acquire from the market somebody who is very proficient in Excel. But people with good Excel skills are not very interested in working in HR, especially if the person does not know the function. Such a person would probably prefer to work in a financial controlling department or become a business analyzer - those roles require a similar skill set. HR will not be the first choice for this kind of person. This is one of the reasons why there are not enough people in the Compensation and Benefits functions. What is worse, it is very hard to find somebody qualified for the role. I talk to recruiters and I know that it is very hard to set up this function from scratch. If you have a good system, you do not need an expert for this role. A senior specialist or even a specialist may be enough to work in the Compensation and Benefits department on a regular basis. Only in some very special cases, you will need an expert or director. But in such a situation, you can find support from an external consultant. To make it work; however, you need to support your internal specialists with specialistic tools.

Bartek Podolski: I am thinking about things that you just said about growing Excels and building macros to make everything work. I think it has a special name - it is a shadow IT for me. It means that you have IT and you have people who build little systems outside of the official IT team, just to handle the daily work. I am not saying it is wrong, I am just saying that there is a need that comes from not having a proper IT infrastructure. If you do not have a proper system, you create something in the Excel file. I think that half of the projects are made by people using Excel. Since we are talking about the challenges related to IT, I think that lack of the proper IT infrastructure is the biggest one. From our experience, we know that Excel can be very tricky and actually very dangerous, especially in terms of data security while sharing files and sensitive information. Actually, you are not able to control what people are sending and where. And I guess that a lot of mistakes go unnoticed or even worse in situations when somebody sends something to the wrong person. Such situations happen and probably they happen more often than we know about it. What is worse, you cannot control it because there is not enough IT infrastructure to track who sends which excel to whom or who is dropping the file on the shared drive and gives access to it. It is a massive danger. There are numerous things related to building shadowed IT systems. But I think this is the first possible solution for people when they have nothing else. When you do everything manually, there is a natural desire to put more data in excel and create more complicated formulas that will speed up the process. But at some point, you realize that it takes you nowhere because of all the limitations that we already mentioned.

Magdalena Tur: And we have to remember about situations when a person leaves the organization. At the same time, all the knowledge just vanishes.

Bartek Podolski: Yes, that is so true! I have a good example here. We were implementing a system for a local company. We even had a case study published on our website. Basically, it was about switching from old COBOL-based systems to new ones. Just to clarify, COBOL is a very old programming language and there were not enough specialists to support it, so the company was afraid that they would not find specialists on the market who could support the system. Actually, it was one of the drivers for a change. I guess the same situation may happen when you build sophisticated macros and suddenly its support becomes more and more expensive.

Magdalena Tur: Indeed, maybe it was cheap in the beginning. But with every year it becomes more and more expensive. Especially when you cannot find people who could maintain the file and keep it updated. It is a lot of work which costs a lot in the end. The final amount might be higher than implementing a system that can be adjusted to your needs.

Bartek Podolski: A few days back we were also speaking about the best solution: would it be better to have a system on-premise or in the cloud? Looking at the past five or even ten years, those two solutions are standard, but cloud solutions became more popular. It means that physically you do not own the solution, but you have access to it online. In that case, you buy the service, not the platform. From my perspective it is the right direction because such a solution decreases the cost of ownership - you do not have to have all servers, you do not have to have your own support, etc. Typically, when you buy a new system, you have to hire more people with IT skills and have more support and hardware. Then you get all the issues related to the hardware because it also gets outdated, so you have to switch it, install all the patches for the software. So it all makes it an old style of doing systems. Currently, you have those online tools and software as a service solutions where from your company's perspective, you do not have to do anything. you just expect to have a good service provided and everything else that I just mentioned is on the supplier’s side. I think it is the right direction, but I know that there are some concerns or restrictions within companies that make this choice a bit harder to make. What is your opinion on it?

Magdalena Tur: I would say that the direction is very good because even a small company can afford to buy such a system without the proper infrastructure. In fact, I was surprised with the costs of maintaining all those IT stuff.

Bartek Podolski: It is well-hidden.

Magdalena Tur: But still, I am very surprised at the cost of the IT infrastructure that needs to be maintained by the organization when they have their system and their servers.

Bartek Podolski: Imagine that you have to do backups, so you need somebody who will look at it and do it regularly. People do not do backups until something happens and then they are looking for a way to recover data. But there are indeed so many things that you need to think about while having your own IT infrastructure. Cloud solutions supplied by companies such as Microsoft or Amazon or other smaller ones take over all those responsibilities regarding system maintenance. I like it because it means that we do not have to worry about it.

Ok, so we covered IT topics. Should we cover a bit of people's perspectives?

Magdalena Tur: Of course! It is the main perspective in the HR department.

Bartek Podolski: What people would expect now from the Compensation and Benefits and tools used in this department?

Magdalena Tur: In general, people always expect to be treated fairly. They also need to know that somebody has good control over the Compensation and Benefits. I know that discretionary systems cause some confusion and people do not know what to do, they do not understand why they earn such an amount of money and what they should do to earn differently. Such a system makes people feel that they do not have an influence on their career or the level of their salary. And it is a very bad situation because it means that for employees the Comp & Ben function does not exist in the organization. For them everything depends on something: on managers, on the mood of the manager or the weather and nobody knows about it. So people want to be treated fairly and they want to have transparent and clear systems. I believe that it should be the main goal of the Compensation and Benefits department to provide people with such information.

Bartek Podolski: So they need a reason behind decisions, right? I also think that people expect collaboration in terms of their salary or, at least, they need to have a chance to be heard. It is not about being measured once a year and this is it. They want to talk about it more often, have constant feedback, and receive information about the current situation: what and why is happening, what is expected from them, and how do they meet those expectations. I think that this is the fair approach that is expected by the employees.

Magdalena Tur: Yes, you have to provide people with information. But education is also important because people need to understand the information that we are telling them. So we need to spend some time clarifying how it works, the correlations between processes, etc. And generally speaking, you need to have time for that. It means that you cannot spend all your time in excel or backstage. Sometimes people from Comp & Ben need to be visible to employees. For managers, those people are points of contact. All those tasks require time and good tools. Some of them may be very sophisticated at the backend, but on the front end, it needs to be clear, transparent, and easy. These tools serve Compensation and Benefits workers to provide information in a reasonable amount of time to managers and other employees. Building such a tool is not very easy, but it is possible when we have good processes from the operations perspective and a good IT infrastructure or tools to make it happen.

Bartek Podolski: I would summarize this point. Good tools help in making proper connections. They can connect managers with other people, with the team, with subordinates. Actually, I think those good connections are the foundations of leadership. If you do not have good connections, you cannot make an impact or influence. This is one of the main reasons why it is so important because, in the end, a good influence on people brings value to the company and customers.

I think we spend quite a fair amount of time on our discussion. Now, I will summarize our talk. I think it is worth saying why all topics related to Compensation and Benefits are important. Firstly, I can give my perspective and then you will share your thoughts, ok?

Magdalena Tur: Sure, go ahead!

Bartek Podolski: Why are the Compensation and Benefits important to the organization? For me, it is a way of delivering value to the customers. I feel like in the end, it is all about the whole organization, people who work there, and what they do to make customers feel valued. Good Compensation and Benefits systems may help in bringing those values. As you mentioned before, people expect to be treated fairly, to be transparent, to know expectations towards them. In the end, it all relates to the final product of the company, including customer service and other departments responsible for contact with an end-consumer. For me, the final impact of Compensation and Benefits is hard to measure but it clearly exists. I hope that in the end it is all about really good quality and making the final customers happy instead of having a bad quality that makes clients leave the product or the company.

Magdalena Tur: I totally agree. But I think that with the Compensation and Benefits department it takes several years to prove its real impact. But you need to start at some point and do something differently. When you follow well-known, standard procedures and processes, including using outdated IT solutions or Excel files, you will never produce something new. We all know that something working well in the past is not sufficient now, we all know that HR is changing and you just have to take the first step and take the risk. But I am sure that in a couple of years, the final effect will be seen. I think this is the only reasonable direction that we should take.

Bartek Podolski: And how can we get there? How can we make the Compensation and Benefits better?

Magdalena Tur: Step by step, of course. Like always, small steps would work the best. Revolution is not good for the Compensation and Benefits. This is not a revolutionary process. But it is important to try new things, do something different and work with the manager to make him or her more aware of how the Compensation and Benefits function may support the business goals. You also need to be aware of IT tools that are available on the market because there are a lot of solutions that could be implemented and help daily. What is important, you do not have to have all of them. The most expensive or the fanciest tools may not always meet your expectations. But start from the fundamental actions and it will allow you to build something new.

Bartek Podolski: Sometimes I observe those ideas of making a huge change that I call “a big bang development”. It is about having an awesome system in five years from now with an assumption that only a few people will be dedicated to its development who will create just a perfect IT solution in the end. But from my perspective, it never works like that. If the creation of something or a system implementation takes years, you do not see the value until it is done. But in the process, something may change and you may never see the value of the final product. What is worse, the result may not match the expectations that you had at the very beginning. For me, we can see a similarity with agile software development that works better than waterfall software development. So I think that also in the Compensation and Benefits the right approach is to take small steps and bring value along the way. It is important to have constant interactions once a week or twice a month, show what has been made along the way, get the feedback, adjust it, bring more value next time and just grow this way. It should work better than getting requirements, disappearing and returning after five years, and hoping that the final product meets expectations.

Magdalena Tur: Definitely, we never start with big investments in the Compensation and Benefits, not because it is not a crucial function, but because it is not visible within the organization. What is more, we need to take into consideration other people's perspectives and it will not change at once. This is an ongoing process and along the way, people need to feel secure, confident about processes and systems and what does it mean in terms of the final salary amount for them.

Bartek Podolski: Yes, you are right. I think that today we touched on many points. We spoke about challenges in the Compensation and Benefits environment, we mentioned operations, IT, and people’s perspectives. Is there anything else that you would like to touch right now?

Magdalena Tur: Well, there are many topics that we could cover, but let’s save them for the next time.

Bartek Podolski: I guess we can take one of them and have a deep dive into it in the next talk. So thank you for having this conversation with me and see you next time.

Magdalena Tur: Thank you and see you next time!