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Tips on introducing calibration into the compensation management process

by The Tip Doctor

January 21, 2011

Tip Doctor, Insider Learning Network.

This tip is excerpted from “Enterprise Compensation Management with SAP ERP HCM” by Jeremy Masters and Christos Kotsakis, Published in 2010.

Most companies introduce calibration into their compensation management process using a variety of methods. Some companies delegate the process to each function, allowing managers to approve recommendations at each level and then have an HR review to ensure recommendations are in line with guidelines and within budget. Other organizations drive the calibration process across functions by having HR or the compensation department drive higher-level calibration to review high performers and key positions.

Regardless of your implementation, it is a critical part of the process to ensure that compensation strategies and policies have been applied correctly and that budgets have been adhered to.

Before conducting calibration sessions, your compensation department will first need to generate reports for each department and roll up the totals either by function or by organization.  These reports typically list all relevant compensation data needed to review and calibrate the recommendations.

Some examples of important data for eligible employees include: 

  • Position and Organizational Information
  • Current Base Salary/Rate
  • Time in Position
  • Performance Rating(s)
  • Current and New Compa-ratio
  • Current and New Quartile
  • Recommendations
  • Budget Data (Total and Spent)
  • Guidelines

Once the reports have been generated and formatted, the compensation department sets up meetings with senior-level management and HR to review the proposed recommendations and budget roll-ups.  During these meetings, employees are compared against their peers. Close attention is paid to high performers that represent a flight risk to the company.

Reports on the portal can also be used during this process but may become prohibitive depending on the size of the manager’s span of control. Viewing and analyzing the planning data for a large section of the organization may not be possible due to slow performance on the portal.

If data can be accessed quickly (for example, within a data warehouse), then calibration can include online reports and analysis.  Otherwise, it’s best to work within a familiar environment (e.g., Excel) and record changes quickly.  Although this means rekeying the changes into the system at a later date, the real-time option may not be available to you.

 Realizing Calibration Objectives

During the calibration meetings, the following objectives should be considered: 

  • Reviewing proposed recommendations to ensure that employees are being fairly compensated across the organization;
  • Identifying recommendations that are outside of the proposed range allowed by the compensation guidelines;
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  • Determining if unused budgets can be reallocated to properly compensate high performers and employees with high flight risk;
  • Reviewing merit increases that are targeted toward moving employees to the midpoint of the salary grade; and
  • if applicable, reviewing promotions and other recommendations such as adjustments and lump-sum payments

For more HR advice and resources, visit the HR Group on Insider Learning Network. To learn more about the upcoming HR 2011 event, join the HR Group.  

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