Merit Matrix: Using Predictive analytics in building Compensation Programs

Merit Matrix, is there still any merit in it?
You can build different merit matrix model, but your underlying employee indicative data remains the same.

A What-if projection on compensation budget is built on, current Performance rating, current salary and market pay range. The budget alignment is computed by an iterative increase, to arrive at an approved budget.

A model that is built using above information has a flaw, when forecasting, the data set used for building budget should be in the future, instead of current.

With the advancement of predictive analytics and machine learning, the ability to build more accurate budget programs that aligns with your organization is what HR should be looking at. The magic 3% budget should be exposed in a way, its usage is more actual than accrual.

The merit in Merit Matrix can still be retained using the traditional method of building budgets only by applying modern heuristic algorithms.

Enough talking where am I going with it?

Let’s take any traditional Merit matrix and its components, Performance rating, Compa-ration (driven by Mid Pay) or Quartiles or Range penetrations. All this data, boxes employees into a matrix and an iterative method of applying increase percent guides to build budgets.

What if we have the ability to use the future data and build our budgets on top of it, that means our budgets are more accurate and close to reality. Let’s for a moment assume we have the power to predict employee pay increases, then we can build bottom up budgets using increases predicted by machine learning algorithms.

Using regression algorithms we can predict salary increases to a fair degree of accuracy, it gives you a fixed budget that is more accurate and close the actual requirement vs the 3%.

Now using the predicted pay increases we could box employees into the appropriate quadrants in the matrix based on the predictive distribution. Now HR can build guidelines and rollout a more accurate matrix to managers.

Once you complete the merit increase cycle, you can also compare the predicted increases vs manager input increase. A bias report, an outlier report and more finding, they are of immense value to HR.

Does this really work? The proof of the pudding is in the eating

We built few models for different organization with varying organization size from 300 employees to 30,000 employees, the organizations are from different verticals ranging from manufacturing to services to specialized job. For each organization we used different data points and so our models were unique by nature and the training data for building the program was specific to each organization. We validated our logic on the data sets. Our predictions was cross referenced to historic information of increases. We could arrive at a high degree of accuracy. We are now in the process of intervening user experience to influence the dependent variables used in the predictive analytics. I am working on to build a model that can be shared by customer but still has uniqueness in delivering specific value.

True Customer Connects

Put your heart in and you can deliver the best.

Friday, December 15, 2017

True Customer Connects

Customer satisfaction has a new meaning

                                                  

When  Pat and I started Laserbeam, our only goal was to deliver an inexpensive, yet feature rich software for our customers that pays back every penny they invested. Software products don’t have to be so expensive!.

We have come a long way. I always trusted from the heart; keep doing whatever you do, to the best of your ability and satisfaction, and the rewards will always follow. 

This is all great, but then how do we measure customer satisfaction? There are surveys, connections, meetings and many more. We greet, drink and dine. At the end of the day we have a piece of paper with a high score of 4.5/5 Customer satisfaction index. I always wondered if this is just an index of satisfaction on the work you have done, what more?  Did we really touch them or move them by sharing their pain in business, their work place, job or small things like preemptively adjusting the meeting when they have a personal need.

I know that most of the time we work with the actual doers and not the stakeholders. We take time to get to know them - often reading between the lines on the challenges they are facing at work. A simple thank you and a note of appreciation makes their day. 

I remember once, when one of our client managers was having a baby and her colleague quit, we said we will take all the work and manage until she finds a standby. We said forget the contracts and hourly rates, we are here to help you. That small thing is an example of why we build such good relationships with our customers.

I know we are not working for charity, but does everything need to be billed? No. Then there is the whole other notion about business is a rat race, everything needs to be tied to revenue, "Show me the money", yada yada yada... , I do not live in a perfect world and nor does anyone else, but I believe what keeps us all going is to remember that we are all trying to do work that we can be proud of. 

I always found it difficult to explain that "you will make money in the long run if you do the right things". With twelve years passing by since starting Laserbeam we can observe that 40% of our business has come from referrals.  That means we have saved tons of money in sales costs just be doing the right things for our customers. We never required customer satisfaction scores to win these deals. When someone recommends Laserbeam from the heart vs a lip service, you will know it. The former always closes a deal. I used to wonder how this all adds up, but it’s clear to me we followed the right path.

So is there really a customer satisfaction measure? Yes but it’s not by getting them to answer a set of questions and rating them. I found the true measure when I received a bouquet of flowers across the globe from thousands of miles away, when they heard I lost a dear one in my family. Recognizing the grief I was experiencing, sending a condolence note, and this expression of caring about me as a person just beats me. This to me is a customer satisfaction index that made my day and keeps me going on and on and on...and now it all adds up. Cheers!

Dedicated to all my wonderful customers.