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Compease Salary Administration Software Return on Investment (ROI) Analysis
Sound compensation program increases employee retention and competitive advantage
Compease, developed by Koker Goodwin and Associates, is salary administration software that helps develop and maintain competitive pay rates and improve employee performance through all levels of an organization.
HRN Management Group has been installing and supporting this powerful, yet easy to use compensation management system since 1997. The driving value proposition of Compease is simple and compelling: attract and retain the best employees and you will be better positioned to achieve success.
In order for a compensation program to be effective it must ensure that salary and wage rates are competitive in the marketplace and equitable within the organization. Information must be current and based upon reliable data specific to an organization's size and location; and provided in a format that is concise and easy to understand. The end result is a defined salary structure that consistently controls budgets by paying neither too much nor too little.
Estimating Value
Managing a business now requires more knowledge and skills than ever before; i.e., organizations are increasingly dependent on hiring, and retaining experienced human capital as an intangible asset. For this reason several factors must be considered in a meaningful value analysis of salary administration software.
- Time - How much time does it take for compensation administrators to obtain 'timely and relevant' data on which to base important salary decisions.
- HR administration cost - Subscribing to even a single salary and market research service is expensive. Do you want to base important salary decisions on one source of report data? Or perhaps you subscribe to several data sources. How do you compare them? Are they all measuring the same criteria?
- Productivity - How much could revenue and shareholder value be increased through higher employee productivity? Studies show that maintaining competitive pay rates, integrated with a defined and objective employee performance management program improves productivity and motivates employees to succeed.
- Staff retention and attrition - How many employees left your company in the past year to pursue opportunities elsewhere? How long and at what cost did it take to replace and train the new hires? How many exceptional candidates turned down employment offers to accept offers elsewhere-perhaps with your competitor?
- Unwarranted litigation - Do you have data available that can protect your company from time consuming wage discrimination claims and salary disputes?
Attract and Retain the Best Employees
The most costly liability of a poorly defined salary and compensation program is potentially losing your most valuable staff resources. Studies reveal that the direct cost of employee attrition is approximately 18 months salary for professional employees. The cost to replace an hourly employee is approximately half their annual compensation. This equates to approximately $75,000 in lost company revenue to recruit, interview, hire, equip, and train a single $50,000/yr salary employee. Wouldn't it be more productive and beneficial to your company to allow HR professionals and hiring managers to focus on growing the company by recruiting and hiring candidates to fill new positions rather than backfilling positions that are a result of turnover and attrition?
Save Time and Money
An immediate benefit to an organization that implements Compease is the ease in which that company can administer a complete salary and compensation program. HR administration time, resource requirements and costs decrease significantly-it's like having your own in-house compensation consultant without the costs. For example:
- No need to buy and/or participate in time consuming and costly salary surveys or spend unproductive hours doing ad hoc salary research on the Internet. With Compease, salary market data from industry leading sources are compiled, evaluated, and updated annually.
- Compease designs and maintains salary ranges. Fair and objective merit increase plans are created in minutes based on your budget constraints.
- Compease defines compa-ratios for each position. Compa-ratios are an effective tool to report how an individual, department or organization is paid (% over vs. % under) relative to 'market-rate' for comparable jobs. This data is useful for tracking progress towards meeting goals and identifying potential problem areas.
- Compease was designed to be simple to install and maintain. Onsite customization is usually completed in one day and included in the purchase cost.
Case Study Example
CompanyZ has 250 employees. Their financial performance has been at or slightly below expectation for the past year. During that time, 1 executive, 6 managers, and 15 experienced hourly employees have voluntarily left the company to pursue other opportunities (attrition rate of 8.8%). Recruiting and training qualified replacements has taken longer than expected, delayed filling key new positions, and caused important deadlines to slip.
If we conservatively estimate that the average cost of replacing each staff member is approximately $25K, then the total expense for replacing the 22 staff members is ~$550K in one year.
To purchase Compease software for an organization with 250 employees costs approximately $22.5K for the first year*.
One CompanyZ HR staff member, earning $50K annually, is responsible for obtaining and reviewing salary surveys, calculating and updating salary ranges, and determining compensation budgets.
Upon implementation of Compease, all the salary and compensation data that previously took one month to gather and assess can now be compiled in a few hours saving the company $4.2K annually in administrative expense. Additionally, no independent salary surveys need to be purchased saving $5K/yr.
Upon analysis of Compease salary data; for each employee who voluntarily left CompanyZ during the past year, it was discovered 50% of them were underpaid in their salary band for their experience, performance level and education. Conversely, the report also revealed 6% of company employees (15 employees) are overpaid by an average of $3000 per year equaling $45K in lost operating capital/profit.
If CompanyZ experiences a modest 1.2% improvement (3 employees) in employee retention during year one due to fair and equitable salary planning and compensation adjustments, the company will save $75K in replacement staffing expenses alone. Additionally, employment offers to new employees will be more relevant and based on up-to-date salary market data. Finally, for the 6% of overpaid employees, their merit increases will be adjusted accordingly over time to better align with market rates for employees at their performance and experience levels.
The Bottom Line
Collective savings and ROI are substantial. Conservatively, first year savings are $75K in lower attrition related expenses, and $9.2K in reduced HR administration costs totaling $84.2K. For this example we'll assume salary rate adjustments balance out between low and high paid staff relative to salary grade bands. The bottom line ROI is a nearly 4 to 1 cost savings. For every dollar invested in Compease, $3.75 are saved and added to the bottom line during the first year!
Benefit Summary
ROI benefits to a company that implements Compease are significant and increase over time.
- Increased staff retention and productivity
- Reduced HR administrative expense
- Useful, and reliable information-integrated salary and compensation planning tools based on 'current market data'
To experience even a modest 1-2 percentage point improvement in employee retention is significant and more than pays for the cost of Compease during the first year. ROI savings increase in subsequent years due to the low annual licensing rate.
Similarly, identifying key positions, individuals, and/or departments where 'over vs. under payment' can result in 'at risk' situations allows for effective planning, correction plans, and equitable merit increase budget allocations.
Compease provides an organization with a significant competitive advantage to strategically and equitably manage employee compensation programs while providing important tools to attract and retain key employees.
*Example for illustrative purposes only and representational of typical installation. Actual cost will vary depending upon industry and number of employees.
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