Why Do an Audit?
For the same reason we do financial audits—to fulfill a fundamental obligation, that is, to discover vulnerability. Remember, says Kleinman, who is principal of California-based Dan Kleinman Consulting, someone is always watching, internal and external, and they are evaluating what is going on.
Five Reasons for a Compensation Audit
There are five reasons for doing an audit, says Kleinman.
1. Uncovering Direct Financial Vulnerability
You want to find problems early, before outsiders come in and take a look. Once they are in the door, they are likely to find other problems, and things snowball.
2. Identifying Barriers to Meeting Retention and Development Objectives
The big bubble is going to burst, says Kleinman, and you are going to be faced with a combination of:
- Retirements
- Economic recovery
- Demand exceeding supply, especially quality supply
- Demographics
- Entry levels depleted
- Move toward entrepreneurship
- Other country sourcing
3. Determining Compensation’s Impact on Turnover
Turnover is more costly than many realize. Consider the following, says Kleinman:
- Hard costs
- Recruiting
- Possible wage increases
- Soft Costs … that turn hard
- Down time
- Taking up the slack
- Supervisory time
- Orientation
- Training
4. Assessing Compensation’s Role in Supporting Alignment
The term is “Organizational Congruency,” says Kleinman. Your compensation program helps with alignment between:
- Vision based on values
- Operating style
- Objectives for results that build
- Economics from reasonable slice of finite resources
Incentive plan incenting the wrong things? Fix it now—join us March 13 2014 with an interactive webcast The Essentials of Incentive Pay Plans: Selecting and Designing Plans That Work. Learn More.
5. Minimizing Productivity Distractions
The audit helps to identify and minimize compensation distractions before they become productivity distractions. For example:
- Your compensation program is incomplete or out of focus.
- Your company is unable to attract talent.
- There is dissonance in general based on perceived inequities.
- There are concerns by individuals regarding equality or parity.
Context—the Lay of the Land
Organizations are a mix of history and individuals and no two are the same, says Kleinman. Here are his suggested profile questions so auditors understand and appreciate the context in which information is collected and viewed.
Has the vision been articulated?
- Reason for being
- Vision
- Rarely changes
- Overarching
- Never totally achieved
What is the company’s operating style?
- Structure: Centralized? Decentralized?
- Decision making: Who and how?
- Interaction Priorities
- Truth to Power. How difficult is it to speak candidly to power?
- Quality themes: Sense of urgency? Psychic equity?
Where is the focus?
- Future/longer/shorter term
- Shareholders, customers/clients, staff
What are resources spent on?
- Staff development
- Indirect compensation
Incentive plan doing its job? Join us March 13 for an interactive webcast The Essentials of Incentive Pay Plans: Selecting and Designing Plans That Work. Earn 1.5 hours in HRCI Recertification Credit. Register Now.
Does the organization have a succession plan? And if so, how deep does the plan go?
What is the company’s history?
- Previous audits
- New initiatives
- Acquisitions
- Past liabilities
- Current liabilities
What is the company’s street rep?
- Who knows?
- Who cares?
What is the role of human resources?
- Personnel or HR or strategic HR?
- Perceived value?
- Resources provided?
In addition, says Kleinman, you may want to ask:
What is in alignment and what is not?
What is perceived that is not reality?
What can get done and what cannot?
What challenges can you anticipate?
In tomorrow’s Advisor, Kleinman’s top things to evaluate during the audit, plus an introduction to a timely webinar on incentive plans that work.