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4 Dangers of Using Spreadsheet Templates for Compensation Planning

Tom Sykes Headshot
by 
Tom Sykes
on July 16, 2018

Spreadsheets do a lot for businesses. They’re a great tool for tracking, calculating, and charting data of all kinds.

A growing number of companies rely on spreadsheet templates to manage their compensation process. According to Ventana Research, last year the percentage of organizations reporting that they use spreadsheets to manage compensation increased by 5%—from 35% to 40%.

This seems logical—compensation is all about numbers, right? But for compensation planning, spreadsheets lack the critical functionality to ensure your compensation programs are most effective.

And given the far-reaching impact of compensation on budgets and morale—with labor making up a significant portion of operating costs across most industries—companies cannot afford to take unnecessary risks. They must arm compensation and human resource professionals with the right tools to efficiently and strategically manage salaries, bonuses, and other types of compensation.

And ideally, the tool they use will also help strengthen the compensation management process as a whole.

So what are the risks associated with relying on spreadsheets for compensation planning? And what alternative solutions can they implement to avoid these dangers?

First, let’s establish the difference between compensation and compensation planning.

Compensation Planning Defined

Broadly defined, compensation includes any form and combination of wages, salaries, and benefits that employees receive in exchange for their labor.

In contrast, compensation planning is a process. And that’s an important distinction, because static tools like spreadsheets—while great with numbers in general—just aren’t designed to manage processes.

Using ineffective tools like spreadsheet templates to manage compensation planning can result in some major pitfalls, including

  • Expensive data entry errors
  • Compliance and reputational risks
  • Limited transparency that handicaps managers and demotivates employees
  • Inefficient workflows that can’t scale.

Let’s look at each one…

1. Expensive Data Entry Errors

Human intervention increases the potential for error. It’s an undeniable fact.

Organizations typically rely on multiple managers in the compensation planning process. This, in turn, multiplies the opportunities for error and negatively impacts productivity and financial risk.

As each manager submits their version of the planning spreadsheet template, errors can creep in and compound. For example

  • Simple typos such as calling the wrong function or subtracting instead of adding
  • Applying or changing formulas incorrectly
  • Unknowingly making compensation decisions outside of set parameters
  • Forgetting to include new employees
  • Using the wrong version of the spreadsheet planning template.

The potential for errors is higher than you might imagine. In fact, as many as 88% of Excel spreadsheets contain some type of error. More than likely, your spreadsheets do too.

Now multiply these errors by hundreds of managers and your compensation team is up against the almost impossible task of consolidating manager input, identifying errors, recalculating models, and following up with managers to fix the errors.

And these errors are not immaterial. For an enterprise organization of 20,000 employees, compensation planning errors could total in the hundreds of thousands—or even millions of dollars—in misspent funds.

2. Compliance and Reputational Risks

Unless your organization practices radical salary transparency, compensation data are confidential.

With dozens or even hundreds of spreadsheets floating around the company—typically on laptops—the possibility for a security breach is high. Perhaps worse, this reduced control over the data limits your organization’s ability to ensure compliance with industry, federal, state, and local mandates.

Security and audit trail requirements must be a high priority throughout your compensation planning process. Both internal and external auditors demand process controls, and these need to be well documented to demonstrate that they comply with security and policy rules.

Compliance risks incurred with spreadsheets include

  • Managers who don’t fully understand the template and make repeated errors, which OFCCP audits can expose
  • Data dispersed across departments and systems makes it difficult to ensure and prove consistency across pay grades.

When audits reveal problems like these, the repercussions can impact your employer brand and your organization’s bottom line.

3. Limited Transparency

The trend toward compensation transparency continues to gain traction with employees.

Employees want to understand the rationale behind compensation decisions, to know the process that regulates their salary rates, and to know how they compare with their peers. Thanks to a host of industry studies, HR and business leaders recognize that pay transparency boosts employee motivation, collaboration, and performance.

For organizations using spreadsheets—with elements of the compensation process dispersed throughout your organization and data not centrally maintained—transparency just isn’t feasible.

Companies generally compensate employees based on multiple factors, including performance, level of experience, education, tenure, and market benchmarks, among others. Without centralizing these data, the organization faces major challenges to   

  • Empower managers with information they need to support meaningful and transparent conversations with their employees
  • Provide employees with adequate context to understand compensation decisions
  • Educate managers and improve their compensation decisions.

Ultimately, an organization that cannot deliver the transparency employees expect will miss a powerful opportunity to boost talent retention and, as a result, continue to incur the costs of recruitment and replacement.

4. Cumbersome, Inefficient Workflows that Can’t Scale

As covered already, compensation planning requires input from numerous people. But static spreadsheets can’t handle live updates from multiple contributors. The format requires either manually sharing the master copy from person to person or creating duplicates. Either way slows the process and opens the door to altered fields, botched formulas, and other errors.

The potential for errors is higher than you might imagine. In fact, as many as 88% of Excel spreadsheets contain some type of error. More than likely, your spreadsheets do too.
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Compensation professionals need to analyze and sort data from numerous sources—both internal and external—including market data, survey data, and salary targets. With spreadsheets, this aggregation is cumbersome. The team cobbles data together, inputs it manually, sorts columns, and enters formulas to create the template—all with the knowledge that the hundreds of managers who receive it could mistakenly change key data and details.

What does all this work add up to?

On average, enterprise organizations with ~15,000 employees spend as much as 8–12 weeks managing their compensation cycles using spreadsheets.

Given that level of effort, companies stand to gain considerable savings by migrating away from compensation spreadsheets and adopting a compensation management solution with agility and efficiency built in.

Find out how Schwan Foods cut their compensation cycle time by 30% by implementing PeopleFluent Compensation.

Equally important, for enterprise companies the manual paper chase of disconnected spreadsheets can’t scale. Managing compensation for thousands of employees demands agility. In this environment, spreadsheets quickly become unwieldy and wildly complex.

On average, enterprise organizations with ~15,000 employees spend as much as 8–12 weeks managing their compensation cycles using spreadsheets.
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Alternates to Using Spreadsheet Templates to Manage Compensation

Clearly, the perils of using spreadsheet templates for compensation planning are enough to inspire a search for something better.

A true compensation management system—one designed specifically to manage the planning process—enables HR and comp teams to save considerable time, while also increasing accuracy and enabling

  • Real-time data analysis
  • Visualization and modelling of budgets
  • Advanced reporting for executives, managers, and HR.

Integrating Solutions for a Holistic Approach to Talent Management

Beyond compensation planning, a true compensation management system also positions an organization to integrate other aspects of talent management. For instance, organizations that follow a pay-for-performance strategy can integrate their compensation and performance management systems and reap even greater value from their efforts.

The Formula for Productivity

It’s clear that spreadsheet templates fall short of what’s needed to effectively manage compensation planning. Given the business impacts at stake, organizations have a compelling business case for investing in a compensation management solution.

With the right solution in place, HR teams can shift from a tactical approach to more strategic efforts, including improving the quality of manager decisions about compensation and refining and communicating compensation strategy.

Beyond HR teams, the value of automated compensation management solutions can be felt throughout the organization in things like

  • Improved employee experience
  • Optimized productivity
  • Increased performance across the organization.

Total compensation management using an integrated solution is essential for any HR team that values engaging and retaining employees. And in doing so, an organization is poised to attain greater value from its workforce talent.

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