Compensation Review and Audits Synopsis

A compensation audit can have many positive effects on an organization when conducted on a regular basis and modified accordingly. By positing human resources as an essential player in achieving organizational goals, compensation audits let employees know that the organization is being proactive in making appropriate changes while also being concerned about the fairness and equality of their pay programs. Most importantly, a compensation audit enables an organization to be competitive, support business strategies and allow for the recruitment of top talent at all employee levels. EMEND works in partnership with clients to conduct compensation audits with input from top management and representatives from lines of business and functional areas, steps typically include:

Review and/or develop the organization’s direct compensation philosophy or guiding principles.

This includes:

• Types of programs (base, variable, STIPs, LTIPs, eligibility)
• Performance objectives: results and behaviours
• Competitive markets for determining pay levels (level, geography, industries, industry, comparable talent pools)
• Direct compensation positioning vs. market (base and incentive targets)
• Emphasis on fixed vs. variable pay
• Emphasis on short vs. long-term variable pay
• Pay for performance linkages (corporate, division, department, individual levels)
• Communication philosophy and objectives

Conduct internal review of compensation programs

Auditing Base Salary Programs:

• Link to compensation philosophy and guidelines
• Salary programs
• Job information
• Salary ranges and bands
• Compa-ratios
• Job evaluations programs and practices
• Salary increase programs and practices
• Salary administration programs and practices
• Promotional increase programs and practices
• Regulatory compliance (ESA, pay equity, equal pay)
• Employee communication

Auditing Incentive Programs:

• Link to compensation philosophy and guidelines
• External competitiveness
• Pay for performance linkages (performance goals, incentive targets, external validation and plan leverage)
• Design features
• Tax and accounting implications (if applicable)
• Stock ownership guidelines (if applicable)
• Employee communications

Conduct External Market Pay Analysis

• Base salary
• Annual incentives
• Total cash (base + incentives)
• Direct compensation (base, STIPs, LTIPs)
• Direct compensation mix
• Performance indicators (ROE, revenue growth, profitable growth, operating budget, shareholder return)

To Audit Your Organization and Develop An Action Plan EMEND works with your organization to collect information and assess the status of your programs by conducting:

• Executive/key constituent interviews
• Employee focus groups
• Employee survey

Compensation audits work to

1. Assess compensation processes and programs
2. Perform a “due diligence” review for board/executives
3. Conduct a gap analysis (current state vs. desired/market state)
4. Assess whether or not existing programs conform to various labour laws
5. Determine if the organization’s compensation function is aligned with the workplace
6. Provide management with recommendations that address problem areas
7. Determine the effective utilization and performance of an organization’s compensation program
8. Instill a sense of confidence in management that the compensation function is will managed and prepared to meet potential challenges/organization changes
9. Maintain or enhance the organization’s reputation

EMEND’s Process

EMEND will meet with the client to reconfirm the review objectives and existing propositions. A compensation audit involves analyzing different sources of information including:

1. Existing programs, policies, and procedures (e.g. base pay, incentive pay, job evaluation, pay link to performance, performance management program and process)
2. Compensation electronic/paper filesCompensation forms
3. Employee communication regarding compensation
4. Job descriptions
5. Compensation management issues resolution practices/procedures

EMEND works in partnership with clients to:

1. Prepare a compensation review objectives/deliverable plan
2. Gather relevant data/information
3. Analyze data
4. Make recommendations to CEO and Board
5. Suggest implementation/maintenance plans

HR Review and Audits

Businesses need to focus on reassessing where they are, where they want to go, and how to get there. HR is a key component in this strategic assessment process. Essentially, an audit will effectively help an organization:

• Assess where the organization is at
• Uncover any issues that require attention
• Determine how to best align HR operations with business objectives

Once an organization has all of its priorities in order, and has a clearly set direction in sight, HR is then able to support the organization’s key mission and vision. By focusing on the investment an organization makes in the relationship between employer and employees, companies are able to establish first-rate HR operations and processes. From an HR perspective, an audit will help an organization:

• Focus on how HR can best leverage the value of heir employees and position their company for growth
• Identify the specific manpower needs to skill sets
• Establish organization-wide consensus and support for the goals of the HR department.

An HR audit is a relatively inexpensive and short-term process that allows organizations to evaluate their human resource practices and identify areas for growth. It will highlight an organization’s strong areas, along with potential/legal business critical areas that require attention and due diligence. These areas are specific to an organization’s HR programs and systems including:

• Employment policies
• Recruitment and selection
• Compensation, Payroll and Benefits
• Performance and Succession Management
• Communication
• Leadership and Skills Development
• Health & Safety
• HR Corporate Governance
• Record Keeping

HR audit consists of 2 key elements:

• A compliance review
• A strategic assessment of HR practices

The compliance aspect is currently a key concern for companies. Employment laws are in a constant state of flux and not always easy to follow, and the penalties for non-compliance are unyielding. Failure to comply with regulations can have serious ramifications such as:

• Costly fines
• Retroactive penalties, and;
• Imprisonment (in the most extreme of cases)

The second component, strategic assessment, focuses on determining how a company’s HR practices can be strategically aligned with the organization’s business objectives. Key concerns that are of strategic importance should include:

• Hiring the right employees;
• Motivating the employees and;
• Providing key training and development opportunities

An audit can be conducted in-house. However, many companies prefer to employ consultants for several reasons:

• Consultants are objective
• They are able to give complete attention for the duration of the project, and;
• Managers and employees are more open and frank when speaking with someone outside the organization.

EMEND works in partnership with clients to:

1. Determine the scope of the internal HR audit.
2. Analyze HR procedures to ensure that they are fully documented to avoid incurring government penalties and fines.
3. Establish the employees’ level of awareness of HR policies and procedures to avoid investigations.
4. Ensure conformity with employment laws by verifying that HR processes are properly practiced to ensure credibility as an Employer of Choice.
5. Review company HR procedures at orientation to ensure that the organizations employees are informed and to validate HR practices.
6. Understand recently released employment laws to ensure that the organization is properly updated and conforming to the requirements.
7. Evaluate compliance measures according to the different pieces of legislation.
8. Audit legislative compliance to identify gaps and formulate an action plan to rectify them.
9. Properly assess compliance status to boost transformation targets.
10. Ensure compliance with legal requirements and procedures for good corporate governance.
11. Benchmark the organization against industry best practice to plan for future improvements.
12. Identify gaps to increase productivity and the bottom line.
13. Assess legislation as a point of reference in the audit review process to keep HR processes updated.
14. Develop a remedial action plan to indicate where the company needs to focus in the future.
15. Evaluate the use of business process mapping as a tool to ensure the efficiency of HR processes.
16. Manage and interpret HR Audit results.

The HR audit is a road map for business success. Regardless of the motivation, the benefits of this cost-effective, short-term process are immense:

• Peace of mind regarding crucial compliance concerns
• Direction as to how HR can strategically support the growth and future of an organization; and
• A solid foundation for addressing strategic business goals