Detailed analysis and understanding of core financial costs are a key part of the role of any chief financial officer at multinational companies around the world today. There is no room for vagueness, doubt or unanswered questions- data is needed in multiple forms with accompanying forecasting & analytics to help them draw conclusions and inform decision-making and cash flow initiatives at the highest level.
Global payroll is one of the largest spends at any organization- global employee numbers could be quite significant in volume and possibly growing as companies enter into new markets and territories after the pandemic. This is a lot of people to be paid and is something that will have a significant impact on the financial resources and valuation of the organization. It goes without saying then, that full clarity and understanding is required around multi country payroll costs.
In this article, we will examine the reasons why CFOs today need razor sharp focus on payroll spending and costs in order to gain the full level of insight they need to do their jobs effectively and create business strategy. We will also look at some of the digital tools they may require to gain this insight.
A key business cost
Global payroll and labor costs represent a significant chunk of an organization’s spending- it can be as high as 60-70% of total operating costs. This is a major figure for a chief financial officer to contend with, and understandably, the CFO will want full clarity on this figure and related metrics. The board of directors, members of the executive team and human resources will also be interested.
It is such a key business model cost, any CFO will have a duty of care to ensure this is fully justified and represents total value in terms of helping the organization as a whole meet its strategic, financial services sustainability and global objectives.
The CFO will be interested in drilling down into the cost details and finding out more- they will want to have full confidence that these costs are being optimized in the best way possible. They will also be interested in learning where potential cost savings measures could be applied, or where some level of optimization can happen-for example, detailed global payroll cost reporting can reveal financially advantageous locations/real estate for hiring, retention and the recruitment of top talent.
A CFO access problem
A key barrier in place at many organizations around the world in recent years is access- the CFO is simply unable to access payroll data and reporting in a way that provides the detailed insights that they require. What they need is high level macro reporting to get a country, regional and global view of costs- after that, they will require micro level reporting, so that they can drill down into the specific costs and pay elements and learn about the details that tell the story behind the costs and give them the bigger picture analysis they require. This could be detailed, comprehensive and country specific information on particular pay elements such as sales commission payments, bonuses, tax and pension deductions.
Without access to multi country payroll data in the form of detailed and comprehensive reporting, a CFO might find themselves in a very unsatisfactory position of flying blind and making decisions without the bigger picture inside they really need. Every chief financial officer is a risk averse person by nature, the role simply demands it, so they never want to be in a position where clarity and transparency is absent due to a lack of reporting quality.
But this lack of reporting quality is a very common challenge at multinational companies( startups and small businesses also)-the reason for this is usually down to technology- a lack of investment in global payroll technology that would facilitate the kind of detailed reporting they require. Unfortunately, the global payroll department is one that has been significantly overlooked when it comes to digital transformation, so the global payroll professionals operating within this department find themselves working with outdated processes and legacy technology that may be no longer fit for purpose in their day-to-day jobs and is certainly not fit for purpose when it comes to providing the kind of comprehensive reporting needed by the office of the CFO and other members of the leadership team.
The Macro View
Part of the razor-sharp focus needed by the chief financial officer is getting clear on the macro view or the global oversight. A CFO may work at an organization that runs payroll in over 50 countries around the world. These countries may have different processes and different data when it comes to payroll processing-getting a global oversight can be a real challenge here because of the lack of standardization between the countries.
But this macro view is quite important- a CFO will want total labor costs and spend figures for all the payroll countries inside the organization-this is a key high-level figure that they need to have. Next, they will want to be able to compare labor costs across several different countries, ideally in a single currency. This comparative reporting is hugely important as it can give real and instant insight into significant costs across payroll countries and how they differ.
While the data exists, it is unlikely to be standardized across countries so comparative reporting can be difficult to create. The CFO then struggles to understand which countries have the highest payroll costs and how the payroll countries containing the largest volume of global employees differ in costs- the macro view that they require is just not there because the process in place to deliver and manage multi country global payroll was not designed to facilitate or produce this level of reporting.
The Micro View
The micro view is where the chief financial officer gets into the details and attempts to read the financial management story behind what the data is saying over time. One area in particular they will be looking at with interest is hidden costs-what is the macro view not telling them and can they drill down into the micro details that reveal hidden costs or other not so obvious metrics that can reveal something interesting.
The micro view is essential because it often answers the question of why costs reach a certain figure or vary so much between countries and departments. The micro view can reveal the details that make the difference- bonuses and commissions, holiday and benefit pay, local country nuances, healthcare, tax and pension data. This gives genuine insight and helps to fuel informed decision making and financial planning. Global payroll data and smart management reports will always have a story to tell-they can reveal a lot about the bottom-line financial health of an organization and answer key benchmark questions like
- Are we hiring in the right locations?
- Are we paying people too much/too little?
- Are we close or nowhere near to our gender pay equity/ workplace diversity targets?
- Why is this country costing us so much more e.g. New York or North America?
- Is locating additional staff to this country optimal in terms of costs?
Payroll data is transactional in financial operations, but can tell many stories if standardized, consolidated, and liberated through smart reporting & analytics tools. CFO demands for real-time reporting are on the rise, so global payroll teams need investment and technology support to meet these reporting demands.
A global payroll control platform is required- such a platform can standardize the data flows across all payroll countries, paving the way for detailed, consolidated reporting in a comparative way across countries. By consolidating all your payroll country data onto a single platform, you can then leverage the digital reporting tools to get real-time access to consolidated pay and cost data, delivering analytical insights on entity, country, payroll, or employee level. This is reporting that covers macro level global oversight as well as the micro level details needed for a CFO to really understand what is happening with payroll.
For more information about our Global Payroll Control Platform contact us today.
