Value Pricing the Outsourcing of Compensation Processes: The Indirect Return on Knowledge Baseline

Increasingly, companies are opting to outsource the execution of compensation processes to third-party providers. Compensation outsourcing involves the delivery of administration services that address the transactional aspects of pay programs. In migrating compensation administration from internal staff to an outsource provider, a company seeks to capture gains associated with reduced labor expense, technology enhancements and process improvements. The absolute price of the outsourcing arrangement will undoubtedly be a main determinant of whether to engage a provider. However, the company must also be able to assess this price within the context of the incremental value per process to be received from outsourcing service delivery. This article describes the indirect return on knowledge approach for obtaining a baseline metric for companies to apply in evaluating compensation outsourcing proposals. Also discussed is the nature of the outsourcing project, the changing role of internal staff in response and the pricing of services. [PUBLICATION ABSTRACT]