A Risky Compensation Practice Companies Need To Avoid
Your company has been doing “it” this way for ages, and if “it ain’t broke”, management has no intention to “fix it.” In this instance, the “it” is the archaic and outdated spreadsheet compensation modeling systems that are, surprisingly, still being used by many companies today, despite their inherent risk exposure and downfalls.
Unfortunately, there is a common misconception that the outdated and cumbersome excel spreadsheet models of compensation, while antiquated, are still effective and are not worth the expense of modernizing. The reality is, spreadsheet compensation models are a risk management time bomb waiting to explode.
Human resources and compensation experts must work hand in hand to ensure fair, accurate and competitive pay for all employees. This task that must be handled like the company’s existence depends on it- because it does. Compensation is generally a company’s largest expense, and yet the budget for upgrades to ensure accuracy are the most modest. In today’s litigious environment, audits and lawsuits resulting from compensation errors have the ability to instantly tarnish the reputation and brand a company has worked feverishly to build over time. Litigation or a damaged brand reputation is a high price to pay for holding on to an archaic and inefficient pay process dating back to ‘80’s technology.
The risks associated with a spreadsheet system are many. Here are 4 of the top reasons spreadsheets are a risk management fail:
1. Lack of control over edits.
Although a company may have procedures or rules associated with changes made to models, this doesn’t prevent errors or altercations from happening 100% of the time.
There is a high level of human error risk involved in a system that has more innate exposure than you would expect from an application that handles confidential and private information.
Intentional or unintentional changes can happen without the knowledge or consent of those administering. If any unwelcome changes go unseen, the results can be disastrous.
2. Inconsistent access to changes made.
One of the most applicable advances in cloud-based technology is the ability to instantly see changes that have been made to a shared document without the need for added emails, updates and other unnecessary and time-consuming interaction.
Changes happen in real-time, saving valuable time and exposure to miscommunications that arise between multiple versions. The most current version is available to all intended parties at all times.
Emailed attachments (another security risk in and of itself), printouts, or manually updated changes to be sent out and received can lag or be lost, creating issues in document accuracy as well as confidential information breaches.
3. Audit clarity and risk.
Models in a cloud-based system (which is typical of current, more progressive compensation modeling) have features that support in the case of an audit, unlike excel spreadsheets which can create a compliance and risk nightmare if you are unlucky enough to be audited and have resulting issues.
4. Confidential information being shared unintentionally.
Compensation teams using spreadsheets spend an obscene amount of time checking for confidentiality concerns when “slicing and dicing” information to be disseminated to the appropriate places.
After going through the lengthy and tedious “slice and dice” process, the spreadsheets are again sent to management to check for inaccuracies, and back again to be audited by compensation and HR once more. See the black hole of time and space for human error as a result? More sophisticated software technology streamlines this process to be more accurate, all while saving the cost of labor and time invested in these outdated processes.
If your company is not using a compensation system, contact CompTeam and we will help you choose the right fit for your needs.
Howard Nizewitz - Howard’s extensive expertise in compensation management comes with a 25-year track record of implementing strategic and successful compensation programs in the financial services and technology industries with both a global and regional focus.
His tenure includes positions at Barclays, Citigroup and JPMorgan to name a few. Other areas of expertise include HR consulting, deferred compensation, incentive plan design and talent management. If you would like to learn more, please contact