Compensation & EPMS: Merit Matrix Integration Guide

Unlock the power of performance-based compensation by integrating Compensation Management with the Employee Performance Management System (EPMS) and Merit Matrix. This guide details the setup, workflow, and strategic value of linking employee performance directly to compensation decisions.

Who this is for: HR Administrators, Business Administrators, and Compensation Specialists
Time needed: 20 minutes to understand, 1-2 hours for setup and validation
Prerequisites: Compensation Management and EPMS core apps enabled, performance review data available

🎯 What You’ll Learn

• How Compensation Management and EPMS work together
• The data flow from performance reviews to compensation changes
• Step-by-step setup and configuration of the integration
• Using the integrated workflow for annual merit cycles
• Troubleshooting common integration issues

📋 Before You Start

Required Access:

• Business Administrator or HR Administrator role
• Permissions to configure both Compensation Management and EPMS
• Access to performance review and compensation data

Data Preparation:

• Completed performance review cycles in EPMS
• Accurate, up-to-date employee compensation data
• Defined merit increase guidelines and budget
• Clear understanding of your pay-for-performance philosophy

Key Concept: Compensation Management is the foundational layer. It must be enabled and populated with employee salary data before the Merit Matrix can function correctly. The Merit Matrix depends on this data to calculate increases.

🔗 How the Integration Works

System Architecture and Data Flow

The integration creates a seamless data flow from performance evaluation to compensation adjustment, ensuring that pay decisions are data-driven, consistent, and equitable.

Data Flow Explained:

1. Performance Input: EPMS provides performance review scores, goal completion data, and competency ratings.
2. Compensation Input: Compensation Management provides current employee salaries, which are used to calculate compa-ratios and position-in-range.
3. Calculation Engine: The Merit Matrix engine uses configurable rules to combine performance data and compensation position to generate recommended merit increases.
4. Budgeting: The engine aligns recommendations with predefined budget parameters to prevent overspending.
5. Approval Workflow: Recommended increases are routed through Compensation Management’s approval workflows for manager and HR review.
6. Data Update: Once approved, the new compensation amounts are automatically updated in the Compensation Management system, and a complete audit record is created.

🚀 Step-by-Step Integration Setup Guide

Step 1: Verify Prerequisites

Core App Status:

1. Navigate to Admin → System Modules.
2. Ensure both Compensation Management and Employee Performance Management (EPMS) are toggled ON.
   • If either is disabled, enable it now. Compensation Management must be enabled first.

Data Health Check:

1. In Compensation Management, verify that employees have accurate salary/hourly data. The Merit Matrix cannot calculate increases without a base salary.
2. In EPMS, ensure that a recent performance review cycle is complete and that employees have final ratings.

Step 2: Configure Dependency Settings

The system automatically recognizes the dependency, but you should verify the configuration.

1. Navigate to Admin → EPMS → Settings.
2. Go to the Integrations tab.
3. Find the Compensation Management Integration section.
4. Confirm the status is “Connected”.
5. Enable Merit Matrix: Check the box for “Enable Merit Matrix for performance-based compensation”. This makes the Merit Matrix visible within EPMS review cycles.

Step 3: Configure the Merit Matrix

1. Navigate to Admin → EPMS → Merit Matrix Setup.
2. Define Performance Axis: Map performance rating levels (e.g., “Exceeds Expectations,” “Meets Expectations”) to the matrix rows.
3. Define Compensation Axis: Configure the columns based on employee’s position in their salary range (e.g., Quartile 1, Quartile 2) or compa-ratio.
4. Populate the Matrix: Enter the target merit increase percentage for each cell where a performance level and a compensation position intersect.

Example Merit Matrix Configuration:
| Performance Rating | Compa-Ratio < 90% | Compa-Ratio 90-110% | Compa-Ratio > 110% |
|——————–|—————–|———————|——————–|
| Outstanding | 5.0% - 7.0% | 4.0% - 6.0% | 3.0% - 5.0% |
| Exceeds | 4.0% - 6.0% | 3.0% - 5.0% | 2.5% - 4.0% |
| Meets | 3.0% - 4.0% | 2.5% - 3.5% | 2.0% - 3.0% |
| Needs Improvement| 1.0% - 2.0% | 0% - 1.5% | 0% |

Step 4: Link to Performance Review Cycle

1. Navigate to Admin → EPMS → Performance Review Cycles.
2. Create a new cycle or edit an existing one.
3. In the Workflow step, check the box “Include Merit Matrix recommendations at cycle end”.
4. Set Budget: Enter the total merit budget (as a percentage of total payroll) for this cycle. The system will use this to ensure recommendations are within budget.

🔄 Using the Integrated Workflow

This workflow is typically performed by managers and HR administrators at the end of a performance review cycle.

Step-by-Step User Workflow

1. Manager Accesses Merit Worksheet:

• After finalizing all direct reports’ performance reviews, the manager receives a notification that the Merit Planning Worksheet is ready.
• Navigation: EPMS → My Team → Merit Planning.

2. Review Recommendations:

• The worksheet displays a list of direct reports with their final performance rating.
• The system automatically populates the recommended merit increase based on the configured Merit Matrix and the employee’s current salary from Compensation Management.
• The manager sees the dollar impact of the increase and the total for their team, tracked against their allocated budget.

3. Adjust and Submit:

• Managers can adjust the recommended percentages within their overall budget. They cannot exceed their budget without additional approval.
• The manager adds comments and justification for any adjustments.
• Once finalized, the manager clicks “Submit for Approval”.

4. Final HR/Admin Approval:

• The submitted recommendations are routed to HR or a senior administrator via the Compensation Approvals queue in the Compensation Management module.
• The approver can review the entire team’s recommendations, including manager comments and budget impact.
• The approver can approve, reject, or modify the recommendations.

5. System Updates:

• Upon final approval, the system automatically creates new compensation records in Compensation Management.
• The effective_date is set based on the review cycle’s configuration.
• The change_reason is automatically documented as “Merit Increase from [Cycle Name]”.
• A complete audit trail is generated for every single change.

📊 Data Synchronization and Consistency

Single Source of Truth:

• Compensation Data: Compensation Management is the master source for all salary and hourly rate data. The Merit Matrix reads from it but does not store it.
• Performance Data: EPMS is the master source for all performance ratings and goal data.

How Data Stays in Sync:

• Real-Time Read: When the Merit Matrix is accessed, it performs a real-time lookup of the employee’s current salary from Compensation Management.
• Automated Write-Back: Approved merit increases are written directly back to Compensation Management, ensuring no manual data entry is needed.
• Locking: Once a compensation cycle is initiated, performance ratings are locked to prevent changes that would affect merit calculations.

💡 Best Practices

• Communicate Clearly: Before the cycle begins, inform managers how the Merit Matrix works and what their role in the process will be.
• Train Managers: Provide training on how to use the merit worksheet and how to have effective pay conversations with employees.
• Calibrate Performance Ratings: Ensure performance ratings are calibrated and consistent across the organization before linking them to pay. Inconsistent ratings will lead to inequitable outcomes.
• Review Budgets: Set realistic budgets before the cycle starts. The system enforces the budget, so it must be accurate.
• Audit the Process: After each cycle, review the audit trail to ensure the process worked as intended and to identify areas for improvement.

❓ Troubleshooting Common Integration Issues

Issue: Merit Matrix option is not visible in EPMS.
Solution:

• Verify that both Compensation Management and EPMS are enabled in System Modules.
• Ensure the “Enable Merit Matrix” setting is checked in EPMS → Settings → Integrations.
• Make sure you have the appropriate HR Administrator permissions.

Issue: Recommended increases are 0% or seem incorrect.
Solution:

• Check that the employee has a base salary entered in Compensation Management. The system cannot calculate a percentage increase on a $0 salary.
• Verify that the employee has a final, locked-in performance rating for the cycle.
• Review the Merit Matrix configuration to ensure percentages are entered correctly for the employee’s performance/compensation position.

Issue: Manager cannot submit recommendations (button is disabled).
Solution:

• Check if the manager is over their allocated budget. The system will prevent submission if the total increases exceed the budget.
• Ensure all direct reports have finalized performance reviews.
• Verify the submission deadline for the cycle has not passed.

Issue: Approved changes are not reflected in employee compensation.
Solution:

• Check the Compensation Approvals queue to ensure the final approval step was completed.
• Verify the effective_date for the changes. The new salary will not be visible until that date.
• Review the Audit Trail to see if the system recorded the change. If it’s there, the update was successful. Contact support if the record exists but the salary is not updated.

📚 Related Resources

• Merit Matrix Complete Guide: A deep dive into the features and configuration of the Merit Matrix itself.
• EPMS Performance Reviews Guide: Learn how to conduct the performance reviews that fuel the merit process.
• Compensation Approval Workflows Guide: Understand the approval side of the compensation changes generated by this integration.

By integrating Compensation Management with EPMS, you create a powerful, transparent, and fair system for rewarding employee performance and driving a high-performance culture.