Digitas LLC, a Boston-based direct marketing firm, used software from Salary.com to calculate annual employee pay raises this year, and Holly Thomas, who leads the compensation department, says she’ll never go back to spreadsheets. “It’s night and day,” Thomas says. “What used to be a very labor intensive, worrisome process–because that’s just the nature of spreadsheets–has become very state-of-the-art, very efficient.”
The marketing company adopted software called CompPlanner, Salary.com’s enterprise compensation management (ECM) software, in November 2003 as part of an initiative aimed at freeing up employees so they could focus on building the business. Within months, the new software–which itself only debuted in November–shaved “a couple of hundred hours” off Digitas’ merit raise process for this year, Thomas says.
Digitas isn’t alone. Companies are turning increasingly to ECM software offered by vendors like Needham, Mass.-based Salary.com and such more established rivals as Kadiri Inc. and Workscape Inc., says Craig Symons, an analyst at Forrester Research Inc., a Cambridge, Mass. research and consulting firm focused on technology companies. “The technology has become more available and easier to implement,” Symons says, and “there’s certainly been a move toward adoption of these kinds of packages in the last 12 to 18 months.”
Symons and other experts say ECM software saves companies time and money because the mainly Web-based systems eliminate the time spent waiting for spreadsheets to make their way through the organization and reduce the errors that occur when many spreadsheets are combined. The software also helps companies identify and retain employees who perform well, which is becoming increasingly important now that the U.S. economy has begun to rebound, says Kevin Dobbs, vice president for marketing and business development at Kadiri. “The general attitude for most companies over the last few years was, ‘You’re not getting a raise; your raise is you’ve got a job,’” Dobbs says. As business improves, companies are now focusing more on ways to keep key people.
Burlingame, Calif.-based Kadiri began offering its ECM software in 1999. Its 40 customers average about 15,000 employees each, but the largest, Wells Fargo Bank, uses it for more than 110,000 employees.
Also among its client roster is Motorola Inc., which uses Kadiri software to calculate compensation for 94,000 employees in more than 60 countries. Before Motorola implemented Kadiri’s software in 2002, Dobbs says Motorola spent about 13 weeks each year determining employees’ performance, raises, bonuses and stock options. In 2003, Motorola managed to reduce that commitment of time to four weeks, and in 2004, it condensed it to two weeks. “So the amount of time that the manager now has freed up to do other things is pretty significant for an organization that large,” says Dobbs.
Figuring out compensation more quickly also makes companies more nimble. Several Kadiri customers–realizing they were about to miss earnings targets–have halted the compensation process and recalculated, enabling them to meet projections, Dobbs says. The software also helps discourage managers from going over budget, something that can’t always be controlled with spreadsheets. Kadiri’s system costs $600,000 to $700,000 to implement on average, Dobbs says, and clients average a 107% return on investment the first year.
Deidre Moore, director of strategic communications at Workscape Inc., a Framingham, Mass.-based competitor, says some of her company’s clients have recouped their investment in less than a month or within “a matter of months” just because they didn’t overrun their compensation budget. Pricing for Workscape’s software, which it also began offering in 1999, starts at about $350,000 for a company with about 5,000 employees, and increases from there depending on a company’s size and complexity of compensation.
Stock options became an important part of compensation during the 1990s, and many companies now award bonuses associated with corporate or team objectives in addition to annual merit pay raises, Moore says. “That increasing complexity has really lent itself to automation,” she says, adding that General Motors Corp. uses Workscape’s software to plan for 140,000 employees. “That’s a lot of spreadsheets for somebody to aggregate.” Workscape says that Honeywell International Inc., IBM, Freddie Mac and Raytheon Co. purchased the company’s ECM software in 2003.
ERP providers also offer ECM software. For instance, Michael Graves, head of development for Oracle Incentive Compensation, which debuted in 1997, claims Oracle’s solution provides a high degree of “visibility,” allowing managers to communicate goals to employees clearly and workers to understand what they need to do to get the most reward.
Forrester’s Symons contends that the technology foothold ERP providers have at many companies could help them win business. “That’s really the coming battle,” Symons says, predicting that more narrowly focused providers like Kadiri and Workscape will be forced to compete as the ERPs extend their products. “PeopleSoft clearly will become more of a bigger player in that marketplace because it pretty much dominates the HR segment.”
Currently PeopleSoft has more than 2,000 customers using its ECM software, which is part of PeopleSoft HCM, a suite of products that includes tools for human resources, payroll and other services. “There’s huge, huge growth in this particular area, and it’s just starting to be tapped,” says Jason Averbook, PeopleSoft’s director of global project marketing for human capital management. “It makes more sense to be able to say, ‘Okay, I’m going to do my merit increases and payroll in the same application so that it’s seamlessly integrated’ instead of spending technology dollars [toward] going out and building these manual interfaces to send data from a Kadiri over to PeopleSoft to pay these people.”
But Workscape’s Moore counters that many of her company’s clients find that some ERP solutions are designed too much for HR administrators rather than for those who need to use them most–managers and employees. “You can roll out the best system in the world,” Moore says. “But if employees and managers don’t use it, you are not going to get the return on that investment.”