SMART Salary Audit - The Solution to Setting the Correct SalaryMarch 15, 2021
Setting a salary audit is usually something that many managers do not look forward to. The employee, on the other hand, may have realistic or unrealistic expectations. The feeling when everything is over is usually an itching dissatisfaction. But does it really have to be that way? My short answer is; No, absolutely not!
You who feel that there are no problems at all with the payroll audit in your business can stop reading right here. I just say CONGRATULATIONS and I firmly believe that you belong to one of the exceptions (feel free to give me a call or email).
A SMART payroll audit requires a work effort based on structure, facts, and tools. Also, you must have a clear salary-setting criterion that is well-established in the organization and joint agreements on individual goals. Agreements between the social partners must also be taken into account. In many organizations, not all of these parts are really connected and the work of grasping all the data is becoming increasingly complex. To add to this, one must consider the subjective assessments and uncertain managers, and an audit that will cost significantly more than what was intended from the beginning resulting in no one being satisfied!
Common challenges (read PROBLEMS) tend to usually look like this:
- Salary adjustment is not clearly linked to goals and performance
- Salary interview is often based on what it looks like “right now”
- Salary criteria are not clearly established
- Lack of differentiated wage setting
- The costs for various benefits are not transparent thus it is difficult to get an overview
- Processes are time-consuming and inefficient
But we can probably all agree that the salary revision is important for all parties involved and that the basis for decisions must be well thought out and correct. You also want the decisions made to be based on transparency and clear data that links any salary adjustment to results from several references. You want employees to understand the salary-setting assessment criteria and as a manager, you want a simple tool that helps you with the whole process but also simulates various suggestions on how the pot of money can be distributed based on an accurate algorithm.
If we can solve all the above challenges for you, and you want to save time? Voilá, enter Heartpace! Do not hesitate to contact us directly by clicking on one of the links below to receive a demo, if you still want to know a little more first, please continue reading.
Let's discuss the above problems a little more closely:
1. Salary adjustment is not clearly linked to performance
In all honesty, how clear are your salary criteria and how do they relate to what creates success in your organization? Another question is how thoroughly and often are they communicated in the daily work, for example, how are they followed up, how often are they addressed, and are they linked to performance?
If you want to succeed with clear salary criteria, it is important that they are linked to the work to be performed for all employees and that the goal picture is well established. The first question that must be asked is "What is the goal for each individual employee?" because if this is an unknown matter, you're up for a challenge. Clear goals (preferably few and measurable in some form) for each employee that is linked to current salary criteria is a valid cornerstone.
2. Salary conversation is often based on what it looks like "right now"
Daniel Kahneman, an Israeli-American psychologist, was awarded a Nobel Prize in 2002 for his research. He demonstrated, among other things, how the brain works in assessing different situations over time. In his book, "Thinking fast and slow" he describes that in an assessment situation, the parties will handle the time period that is closest and it will overshadow what has happened before. Trying to recreate situations that happened almost a year ago is therefore an impossibility. From this, it is understood that in many organizations you will in principle focus on what has happened in the last quarter or perhaps the last month before the salary revision takes place. That’s unfair.
If you really want to relate to the entire past year, you must capture the performance on an ongoing basis and make proper notes about how and on what parameters the assessment was made. There is no chance that you can relate to the performance of different employees based on your memory over a long period of time. And should you also capture other colleagues' assessments of your employees (for additional references), then please note that they are also in the same situation.
3. Salary criteria are not clearly established
How clear are your salary criteria? Are they self-evident and are they linked to things that create success for your organization? Of course, the salary criteria should reflect what is required for success. If it is not clear, you will get sub-optimization in the business where things that are not really important are prioritized over other things that perhaps should be at the top of the list. Go through them and ask yourself the question of how they interact with your overall and individual goals.
4. Lack of differentiated wage setting
I have sometimes heard the justification that "equal distribution for all is fair". However, this is not the case in most successful businesses where you’re commonly awarded through individual salary settings.
All activities depend on performance therefore it is not wrong to reward those who perform more than others. Should you want to see it from a larger perspective, it works just like with everything else in life. The risk of rewarding equally is that those who perform more than others will soon seek out someone who appreciates them more, which means that in the long run you are left with the people who do not perform who you also rewarded with salary increases. This results in a long-term wage slippage that erodes profitability and competitiveness.
"That’s blunt" you might say. Of course, I answer, but with the Heartpace approach, everyone will win in the long run. Even those who have not performed because it makes it possible for them to find other places where they may fit in much better and thus increase their engagement.
In Heartpace, we capture the salary criteria that apply to your business. These can be recorded during the year (optional intervals) with an algorithm that is used to distribute the salary increase space based on grades being set. In this way, a manager receives help with distributing a proposal based on how they’ve graded and commented on their employees throughout the year. Management also receives assistance in keeping a budget and still rewarding the right employees.
5. The costs for various benefits are not transparent thus it is difficult to get an overview.
You would think that a manager, or a management team, has access to all data on costs when setting salaries. However, this is not normally the case. In a salary discussion, it is important to see all the remuneration and costs that are linked to an employee. In addition to salary, what other benefits does the employee have, what taxes are paid, and so on? Another area that is overlooked is the pension provision. How big is it for the individual employee and how is it affected by a salary increase? We have encountered businesses with “hidden” pension programs where they all conjured away the entire annual profit because they did not include the pension increases when negotiating the salaries. Pension is commonly the second largest cost in service companies, but it is often dealt with little priority or completely forgotten. That’s bad.
If you're to be able to keep a budget in the business, all participants must know all the costs that are involved so that you can stay within a given and known framework.
6. The processes are time consuming and inefficient
More and more people are skipping Excel in favor of administrative systems. But if, for example, there are variable remuneration as a bonus or commissions, then virtually all ordinary salary systems fail and are almost always supplemented with an Excel spin. It creates heavy administration for many and also, it is an uncertain process from several perspectives, such as GDPR. At one of our customers, by implementing our solution they could skip 120 Excel sheets which lead to many hours gained and lot’s of insecurity put aside. How can such an improvement be valued?
The Uniqueness of the Heartpace SMART Payroll Audit - Everything in One Tool
We have not yet come across any other system that can connect the whole of a payroll audit in a single process as we do. What makes Heartpace SMART Salary unique is:
- The tool can connect different measurements (monitors) to the organization's wage-setting criteria
- You have an opportunity to follow up with actions and targeted talks during the year,
- Managers are helped with salary proposals via an algorithm that takes into account the organization salary criteria (an algorithm you can work with yourself)
- Management can ensure that the set budget lasts throughout the entire process as all costs associated with the employee are included in the calculation. No surprises!
- Everything fits in a GDPR-secured place and not insecure versions of excel sheets.
The process is completely flexible, which means that you adapt it to the conditions that apply to your business.
In addition to the above points, there are of course aspects such as managers verifying and being able to communicate with senior management. Collective agreements can also be handled. You can also have several processes with different currencies running in parallel. It is of course possible to integrate our system with other ones but we believe this is an obvious requirement and nothing we need to highlight.
Contact us and we can show you how you and your organization could benefit from our solution. Keep in mind that the revision process for 2022 is starting now! So don't wait to find out how we can make your salary revision work for you.