When Alan Wigley started out in payroll 35 years ago as a 16-year-old wages clerk using a primitive comptometer, the status of the payroll function wasn't exactly high. It wasn't deemed to be of strategic importance and just as importantly, recalls Wigley, "there was no measure of what we were producing - it was just taken for granted". Today, by contrast, measuring and managing performance is a critical part of payroll's responsibilities - and one that presents a number of challenges, particularly in a multi-country environment.

Wigley, an independent consultant and vice chair of Webster Buchanan's Multi-country Payroll Forum, discussed some of those challenges in a presentation at Webster Buchanan's Multi-country Payroll Seminar and Workshop in London. He pointed out that payroll performance is a business issue, not just a concern for the payroll function, and should be measured in the same way as any other service.

The principle measures used by payroll are similar across most functions, but the way they're used and interpreted will differ in key respects. Take accuracy. A figure of 99.8% or higher might be considered world-class accuracy - but is world class quality really necessary for every organization, particularly if it carries a big overhead? In some cases, industry standard will be sufficient. Wigley gave the example of a company with 5,000 employees on a mainly weekly payroll, which had never reported a payroll error. That sounds like an impressive performance - until you consider it required 16 payroll employees to check and recheck. By contrast, in another project Wigley was involved in, the project leader brought forward the go-live date by three months and in the process accepted a 95% accurate payroll, sacrificing accuracy in order to speed up the delivery.

Understanding the meaning behind the metrics is also important. Wigley gave the example of a large business he started working with in Western Europe that was struggling with an unacceptably high level of errors, almost all of which, payroll believed, were down to the quality of data supplied by the business. It wasn't until the payroll team started gathering statistics on the origin of errors that it could prove its case.

Similarly, metrics such as cost raise their own questions. Do you measure cost per employee or cost per payslip - and do you just track direct operational costs such as salaries, benefits, and sickness pay, or do you also factor in indirect costs such as payroll-related IT, contribution to company overhead and related areas such as the cost of time data collection?

Payroll Performance Scorecard
Wigley also pointed out that in order to draw meaningful comparisons between different business units' performance, metrics have to be consistent and take account of varying circumstances. A study carried out by Webster Buchanan Research last year showed big variances in the ratio of payroll full-time equivalents (FTEs) to overall headcount, which ranged from as much as 1:7,500 in one US company to 1:200 in some European countries. To make these kinds of equations more meaningful, you need to understand the context - such as the size of each payroll operation, the degree of automation and the level of legislative complexity involved.

These issues were addressed in Webster Buchanan's Payroll Performance Scorecard, a set of tools compiled in association with members of its Multi-country Payroll Forum. The tools consist of an operational scorecard - a day-to-day tool for measuring payroll operations against internal goals or external benchmarks - and a contextual scorecard, which assesses the different factors that can impact payroll performance.

The operational scorecard is built around the five core indicators of timeliness, quality, compliance, cost and customer satisfaction, with a number of optional indicators such as ‘origin of payroll errors'. Having established goals for each metric, actual performance figures can be added in, and the impact of variances can then be assessed.

The contextual scorecard takes the process a step further by building a framework to measure nine factors that impact the core operational indicators, from the quality of data input and the extent of automation to the nature of each payroll function's role (since responsibilities vary country to country). These factors help provide greater insight into the underlying factors that impact performance.

Wigley concluded by talking about the impact of a multi-country payroll scorecard he had used in a previous role to compare performance in the US, UK, France and Switzerland. In the UK, scores for timeliness and completeness, telephone issue closure, accuracy and customer satisfaction were low, not only in comparison to expectations but also in contrast to the other countries - and despite the fact that the payroll services were being provided by the same vendor. Armed with the data, Wigley's team was able to pressurize the vendor into addressing quality of service problems in the UK.

Webster Buchanan's Payroll Performance Scorecard can be downloaded here free of charge.