Five Ways Benchmarking Enables Better Decisions
Oct 11, 2016
Global payroll practitioners are harnessing aggregated data to compare their operations with other companies across the globe or in a specified region.
More organizations are looking at global payroll data as a source to provide meaningful insight and improve critical decision-making about their workforce. These new insights provide executives with granular levels of detail to reveal a far more complete and accurate picture of their enterprise. This drive is certain to have a profound effect on how payroll evolves.
Despite the momentum behind global payroll, there are still doubters who believe it could never seriously be considered strategic. Yet payroll is a function capable of providing a wealth of leading metrics to help an organization maximize its single greatest asset—its people.
The Evidence of Change
So, what exactly are the signs of this strategic transition being made by ambitious global payroll departments?
First, we are witnessing the movement of payroll out from under the leadership of the finance department and into the reporting line of human resources (HR). This trend is occurring across most industries, as reported by Mercer in its 2015 payroll benchmarking report. The report cites the shift as “a change to a more strategic and people-orientated focus.”
Second, a pattern has emerged that signifies a difference in the profile and experience of payroll professionals now typically being recruited by multinational companies. More organizations are seeking to employ payroll practitioners with strategic competencies, such as process re-engineering, performance improvement, and analytics skill sets.
These are practitioners who, with the help of strategic payroll metrics, can help continuously improve the effectiveness of the payroll team rather than just increase the accuracy of the monthly payroll run.
The third, and perhaps most significant factor in payroll’s increasing strategic value, is the more prolific use of benchmarking.
Leading global payroll practitioners are now harnessing aggregated global payroll data (data with much higher integrity) to continuously compare and contrast a wide range of performance metrics—not just across their own operations, but also with other companies across the globe or in a specified region.
For many businesses, this kind of reference point provides the missing piece of the analytics jigsaw—allowing HR teams and senior executives to make talent management decisions based on a wider view of their industry.
Insight Starts With Global Benchmarking
A small number of global payroll vendors now provide benchmarks using anonymous data from across their customer base. The insight presented goes way beyond the headline figures of regional salary averages and can drill right down into detailed figures, such as the cost of specific job roles in different countries.
These benchmarks may not always be as extensive, in terms of data sample size, as some of the renowned and established HR benchmarking providers, but the key difference is that they include a company’s own information, which exists in real time. The data is live and transactional, not static and immediately out of date, and therefore reflective of the real world and its daily fluctuations.
Of course, as global payroll platforms become the new norm and vendors add customers, the sample size grows organically and the “bigger” data will deliver even richer insights.
The real-time nature of the benchmarking data available through global payroll is also pivotal in cutting manual reporting time. Once a business becomes multinational, pulling data together manually becomes notoriously difficult and time-consuming. With the data modeling done for you, instant access to reliable information is guaranteed.
The relevance to benchmarking here is that when the information raises more questions than answers, you’ll be able to interrogate the next data set immediately, rather than re-issuing a second set of requests to every country. A refreshed set of data is always there, whenever you need it.
As the data quality and volume increase and more insights are gathered, the appetite for even smarter analysis almost always grows stronger. Thankfully, today’s payroll analytical tools are now more than equipped to feed this voracious beast, enabling payroll teams to imagine insights they’d never previously thought of before.
Business Decisions Using Payroll Data
While payroll data is used most frequently to enhance performance and accuracy within the payroll function itself, global benchmarking can unleash payroll’s strategic value to the business in many different ways.
Every organization is unique and will undoubtedly search for the insights of most value to their own circumstances. However, here are the five common metrics that can be derived from global payroll benchmarking data, along with the business decisions they support:
1. Labor cost comparisons and distribution—Detailed comparisons of the total cost of specific job roles in particular countries including not just salary, but taxes and benefits. This provides a far more accurate picture of the true costs of employment by each job role and how this differs worldwide.
Business decision: Helps to plan future expansion or planning resources for a new project, for example. This payroll data would help executives identify the best place to recruit a new team in the most cost-effective region.
2. Compensation data—Relates to anonymous, aggregated data for bonus and commission plans, showing what is being paid out to staff in certain job roles in specific countries. It provides a more accurate comparison than, say, a local salary survey as to what it might cost to acquire the required level of talent.
Business decision: Supports talent recruitment and retention decisions. You’ll be able to answer questions such as, “In our highly competitive market, is our compensation package strong enough to attract and retain the best people for this key sales role?” It will also help with standardizing bonus schemes, as well as succession planning.
3. Overtime costs and trends—Reveals whether you could be paying a premium through overtime in a certain region. Comparative analysis from global payroll data will help pinpoint countries with excessive overtime, which is a metric often absent from many strategic workforce dashboards.
Business decision: Improves workforce planning. If you are made aware of certain countries with high overtime costs, you can quickly take action to remedy the situation.
4. Labor trends—Provides comparative data on the average length of employment—statistics that illustrate the time people typically stay in certain job roles in a given region or country. This data can be filtered to show length of service by age or gender.
Business decision: Supports succession planning. Based on demographic data, you’ll be able to predict how long certain people are likely to stay in their jobs, as well as potentially understanding what is causing people to leave. So you’ll be able to find ways to change the dynamic and keep key people for a longer period.
5. Flight-risk assessment—Similar to the previous example, can also be used to predict the potential flight risk of new hires based on their profile. This insight could be part of a set of criteria used to evaluate the profiles of different candidates for a particular role.
Business decision: Improves decisions on hiring, as well as the development of staff. Your business will be able to make more informed decisions to reduce the number of bad hires, identify high-turnover roles, and reduce the risk of someone in a critical role leaving unexpectedly.
Benchmarking Comes With a 'Health Warning'
The global payroll benchmark data drawn from real-time analytics can provide invaluable business insights, with these five potential use cases just a starting point for better workforce planning and talent management.
However, as payroll information becomes a key part of the strategic toolset, strengthening the foundations for business decisions, benchmarking analysis must not be taken lightly. With the data instantly available, along with powerful analytical tools at your fingertips, it’s easy to get carried away, in turn creating a myriad of different metrics. More importantly, benchmarking data is open to interpretation, so if robust principles aren’t followed, you could find that your insights prove to have been miscalculated at a later juncture.
A disciplined approach is therefore required to ensure information is interpreted properly. This means assessing data on a strictly like-for-like basis, while being clear about the precise definitions of your benchmarking metrics.
The volume of data is also a key consideration. Small sample sizes shouldn’t be dismissed, but you should apportion the integrity of the findings appropriately. Don’t base an entire strategy around a limited dataset. At the same time, be wary of filling the gaps with survey results, which can often be misleading.
Successful adoption of strategic payroll also requires you to integrate your benchmarking metrics with a balanced scorecard to ensure they support your company’s overall business goals and HR strategy. This would likely result in a smaller number of key metrics routinely evaluated to provide precise insights.
There’s no doubt global payroll benchmarking data is highly effective in elevating the strategic role of payroll, but if done poorly, it also can rapidly undermine payroll’s newfound importance.