Getting Compensation Right for Shared Services Positions
Over the past 15 years, the shared services model of delivering support services has gone from "hot new innovation" to "tried-and-true business model." And yet, it is not clear that corporate compensation specialists have recognized the shift and adopted their practices to support it. As advisors to both shared services start-ups and mature global operations, we often hear the complaint that "our corporate compensation people do not understand the value of our shared service management team or the nature of their work." While it would be easy to dismiss these claims as simple compensation grousing, a closer look reveals more.
Companies implement shared services centers to reduce costs and create value for their organizations. This entails aggressively rooting out non-value activities and creating end-to-end processes, tiered delivery models, SLAs, and centers of excellence. Work performed in mature shared services organizations (SSOs) tends to be broader in scope and requires deeper subject matter expertise than traditional back-office work. While the activities of lower-level shared services employees will be similar to those of traditional back-office organizations, the work of supervisors and managers is generally quite different. If you have ever managed a mature SSO, you realize that the skills required to guide a "purchase-to-pay" (P2P) shared services team are different than those required to guide a traditional procurement department.
Since SSOs do not all follow a common organizational model and there are varying degrees of shared services maturity, it can be difficult to articulate how shared services leadership positions differ from traditional roles. As a result, the significance of these role differences may become lost to the rest of the organization.
Shared services leaders have two primary goals when it comes to determining the market value of pay for their employees: ensuring that the internal value of the work is understood and that external competitiveness is properly evaluated. To ensure that the relative value of shared services jobs is aligned with jobs in the rest of the organization, shared services leaders must clearly differentiate work performed in their centers from traditionally defined work, then convey this value to the rest of the organization, especially the corporate compensation department.
Ideally, good industry benchmark market data from an industry association or similarly organized effort would be used to compare internal positions to industry or national averages. Unfortunately, this data is not yet available for shared service supervisory or management positions. The reason is simple: there is little commonality between shared services positions at different companies. Since no common definition of work scope and complexity exists, no common set of job families can be defined. As a result, the easy comparative method is not an option.
Getting There from Here
To price jobs effectively, shared services leaders must do three things. First, they must understand where their organization and roles reside in the spectrum of shared services operational maturity. Second, they must be able to articulate how the implementation of shared services has changed their traditional roles. Third, they must determine and implement a consistent way of reflecting these changes relative to other positions in the company and to available external market data.
Understanding Operational Maturity
The shared services business model not only consists of centralizing services; it involves developing and implementing a new governance model for delivering them, too. It is this new model that creates jobs that can be fundamentally different from those in traditional support silos, such as finance, HR, purchasing, etc.
Each SSO lies within a continuum of maturity, and its position on the continuum impacts the nature of jobs within the shared services organization function. (Figure 1).
At the far left of the scale, the work in newly formed and less sophisticated SSOs is still similar to traditional back-office organizations. Conversely, organizations that have truly changed their governance model and have redesigned work to reflect end-to-end alignment of processes and the delivery of a knowledge-based workforce are demonstrated at the far right of the scale. Depending on where your organization resides along the maturity spectrum, the nature of your key supervisor and manager roles will vary greatly.
Changing Perceptions of Shared Services Work
It is essential that the rest of the organization values and understands shared services and how it differs from the traditional work model. Communicating the differences well not only ensures that your organization will be viewed (and priced) properly, but also ensures appropriate internal and external leveling of work. In the case of a large wireless organization that primarily uses survey title matching to set pay for its jobs, the corporate compensation group was unable to find an exact match for "head of shared services." In its absence, the job was matched to data for an assistant controller position, which indicated a lower pay scale than was actually appropriate for the position.
At a minimum, jobs in an SSO require an increased focus on customer service, cost management, and continuous improvement versus traditional roles. The differentiation is even more pronounced in mature SSOs, where roles tend to be more process focused, with broader scopes of responsibility than their counterparts in traditional staff functions. Mature shared services jobs tend to have a knowledge-based versus transactional orientation. Incumbents are expected to have broader knowledge of one or multiple functions versus having a narrower focus in one particular area.
A traditional payroll manager is accountable for transactional gross to net payroll processing. A similar position in a mature SSO is often responsible for this function, as well as accounting, master data files, payroll taxes, chart of accounts, and bargaining agreements. The role moves from "transaction manager" to "analytical, knowledge-based manager."
Figure 2 highlights the impact of operational maturity on work within shared services, using Hay Group’s Job Evaluation factors of Know How, Problem Solving, and Accountability. This table can be used internally to explain the change in work and externally to compare existing benchmark survey jobs to shared services positions.
Making the Best Use of Current Market Data
To effectively price shared services positions, organizations must develop a reasonable and consistent approach to using existing data sources. Until good survey sources are available, market pricing of jobs using only title matches in surveys is not going to be an effective way to determine market pay practices for mature shared services positions.
One Approach to Consider
One method of measuring work for market comparison is to use a job evaluation methodology that considers the scope and complexity of work using a common set of factors. In this practice, each job is evaluated against a common set of factors, such as Know-How, Problem-Solving and Accountability illustrated in Figure 2, and a resulting total point value is assigned to the job. Once jobs are evaluated, the point values can be regressed against their salaries to determine a current pay practice line. This methodology can also be used to determine a market pay practice line for a group of jobs within a survey. Using an effective tool, such as the one illustrated in Figure 2, will help compensation professionals determine where benchmark survey positions fall along the spectrum. This benchmarking can then be used to help determine the premium or discount associated with the jobs they are measuring.
Figure 3, above, illustrates how this method might be applied to external market data for finance positions. In this example, the user evaluated the traditional benchmarks in a typical external survey and developed a market practice line titled, "Traditional Finance Practice Line." The dotted vertical lines represent where the traditional roles fall on the graph in terms of both job scope and base salary. The solid vertical lines represent three shared services jobs that are similar to the traditional roles and how their scope and complexity have increased in comparison. The resulting illustration clearly indicates that a different pay practice would be reasonable for these positions.
This is just one method that can be used to adapt existing market data for use with pricing shared services positions. The key point is that organizations must be flexible with available market data and use it in a consistent manner so that it can be explained and validated.
The Real Tough Nut
The above approach works reasonably well when the cluster of responsibility falls within the broad definition of a traditional silo such as finance. It is more problematic when shared services managers are responsible for business processes that cross over traditional silo definitions. There are no external market data, for example, for senior shared services executives responsible for both "purchase-to-pay" and "order-to-cash" processes. The best option is to use a model shown in Figure 2 to assess your shared services roles and then compare similar scores to other functions in your company wherever they may reside. Ensuring alignment of compensation within your company at least keeps the playing field level, internally.
Unfortunately, we offer no "silver bullet" here. The definition of how work is performed is evolving, and today’s compensation surveys and models are still catching up. Many years will pass before SSOs and functions are sufficiently mature to offer standard roles and responsibilities suitable for external market surveys. In the meantime, we must compensate our shared services supervisors, managers, and executives fairly for the services they perform.
In summary, we offer a few principles to smooth the transition. First, maintain good communications and a close partnership with your compensation department. They need time to fully understand the changing nature of what you do. Explain how your team’s work is substantially different than that found in traditional silo positions and why external surveys will consistently undervalue your highest performing supervisors and managers. Second, help your compensation department move away from simple title-based market comparisons to methods that focus on work complexity (e.g., know how, problem solving and accountability). This is the key to compensation parity. Finally, when appropriate, adopt a method of using modified comparisons to external data similar to that shown in Figure 3, or compare position complexity points to those of other supervisory and management positions in your company. The road forward won’t be perfectly smooth, but the trip will be worth the value.
About the Authors
Consultant, Hay Group, Inc.
Nell Custis is a Consultant with Hay Group. Her primary areas of focus include reward design and administration. Her experience includes job evaluation, base salary analysis, market pricing and organization design and effectiveness.
Hay Group is a global management consulting firm. www.haygroup.com
Managing Associate, ScottMadden, Inc.
Karen Hilton has consulted with ScottMadden since 1995. She has expertise in shared services design/implementation, customer satisfaction programs, process improvement, organizational design/restructuring, and cost reduction analysis. In addition, she manages ScottMadden’s survey business.
ScottMadden is an industry leader in the design, implementation and operations of shared services. www.scottmadden.com.
John Sequeira, Ph.D.
Partner, ScottMadden, Inc.
John Sequeira has more than 30 years of domestic and international consulting experience. He is a certified management consultant and has extensive knowledge of supply chain management, operations improvement, and information technology planning. His industry experience encompasses energy, manufacturing, retail, and government.