Varicent Incentive Compensation Management

Choosing a new incentive compensation system comes with some choices about deployment models. Cloud versus On-Premise? Single-tenant versus mutli-tenant? Your focus should first and foremost be about the value of the solution but Varicent ...

Choosing a new incentive compensation system comes with some choices about deployment models.  Cloud versus On-Premise?  Single-tenant versus mutli-tenant? Your focus should first and foremost be about the value of the solution but Varicent realizes that customer situations vary, so it’s important to have multiple options.

When it comes to deployment options, Varicent offers the same software regardless of the deployment option that’s selected.  But first, some definitions:

• Cloud: The server environment is hosted by the vendor.
• On-Premise: The hardware and software resides within the customer’s IT environment.

What’s Right for You?

The right deployment option for you is based on several factors. The Cloud model appeals most to companies looking for a reduced burden on their IT group.  For example, customers sometimes don’t want to spend IT’s time installing, managing, supporting, and maintaining the SPM application.  A single-tenant cloud option is available as well for
customers that prefer dedicated computing server environment but want Varicent to host it. 

In general, Varicent has found that on-premise deployments are best suited for companies wanting to leverage their existing IT infrastructure and investments.  Plus, it’s often chosen by companies wanting the most in terms of control (e.g. upgrades, sizing, maintenance, etc.). The company’s transaction volumes and IT policies also sometimes come into the equation.  

What About Pricing Models?

Pricing models are a different topic than software deployment options.  To meet the requirements of different customers, Varicent offers both subscription and perpetual license pricing models.  In fact, Varicent customers can combine subscription pricing with an on-premise deployment.

Final Words of Advice

Select a software solution that best meets your needs in terms of features and value delivered.  Remember that software architectures and delivery models are just part of the story.  But it’s good to have options.  With Varicent, customers can elect to begin with a cloud solution and eventually migrate to an on-premise solution – or the other way around.

Talk to a Varicent representative if you’d like more information on delivery models and their pros and cons.

Soft economic conditions, and a turbulent marketplace, continue to place significant pressures on a U.S. insurance industry that has already faced contracting revenues and declining premiums the past five years. Having shored up balance sheets, ...

Soft economic conditions, and a turbulent marketplace, continue to place significant pressures on a U.S. insurance industry that has already faced contracting revenues and declining premiums the past five years.  Having shored up balance sheets, and improved financial stability ratings, insurance carriers are now looking to drive profitable growth through an array of distribution channel partners.  Key among these channel partners is the independent agent and broker (“producer”) who represent both an opportunity and a threat.  These producers represent an opportunity as they look to grow their existing book of business while meeting customer service objectives that aid in retaining their existing customer base.  However, they also represent a threat as they look to increase the number of carriers they work with or consolidate their business among fewer carriers.  Those carriers that demonstrate business processes and systems that promote ease of doing business will be well positioned to retain their top producers while also attracting new producers.

Demonstrating distribution channel management that leverages strong business processes and flexible systems, though, presents a challenge to carriers that are still constrained by antiquated legacy systems that were not designed for the expectations of independent agents and brokers.  The independent channel is looking for more flexibility, improved product offerings, and increased accuracy and frequency of incentive payments.  These expectations are leading insurance carriers to analyze all aspects of their distribution channel management strategies and operations including in the area of primary commissions and other secondary incentive compensation measures.  This analysis is leading many insurance carriers to discover that the processes and systems supporting their incentive compensation strategies lack flexibility, increase time to market for new products, are not designed for increased frequency of payments, and do not represent an opportunity to introduce strategic differentiators to the marketplace.

Given the many challenges being uncovered, insurance carriers are now looking closely at next-generation, rules driven sales performance management solutions that provide operational efficiencies, introduce consistency and financial controls, and provide detailed insight into channel performance.  Key benefits of these solutions include:

• Centralized, cleansed, and date effective transaction and payment data with full audit trails
• Flexible, rules based engines designed to support complex commission schedules and secondary incentive compensation including overrides and contingent bonuses
• Insight into producer and channel performance including identifying top producers and underperforming markets
• Configurable workflow engines to automate and manage complex business processes
• Self-service functionality including dispute management and resolution
• Scalability for high transaction volumes and changing business conditions

As independent agents and brokers evaluate their current carrier relationships, and look to potential new carrier relationships, those carriers with the right solutions to quickly and accurately produce incentive compensation payments will likely have an edge over those still tied to inflexible legacy systems that were not designed to support the demands of the independent channel.  Next generation sales performance management solutions, such as Varicent SPM, provide the platform upon which to improve this key area within the distribution channel and well position carriers for profitable growth.

The federal health-care system overhaul is shaping up as a mixed bag for the industry, as regulators issued draft rules on September 23, 2010. These new rules provide guidance on how insurance carriers must account for money spent directly on ...

The federal health-care system overhaul is shaping up as a mixed bag for the industry, as regulators issued draft rules on September 23, 2010. These new rules provide guidance on how insurance carriers must account for money spent directly on patients’ medical care.  The Medical Loss Ratio (MLR) provision, which is intended to limit the amount of premium spent on items other than medical care, will require large group health plans to spend a minimum of 85 percent of insurance premiums on medical care and other related health items, and small group and individual plans to spend at least 80 percent.  Those carriers that fail to meet these thresholds will be required to provide rebates to affected enrolees. 

At the heart of the issue is determining what expenses will count as medical expenses versus administrative.  To understand the real impact we will have to wait until the final rulings on October 21, and then formal approval by the federal government.  The latest draft released by the NAIC has included broker commissions in the administrative cost section of the form that may be used in calculating a carriers’ spending on claims, health quality and administrative expenses.  Inclusion of broker commissions in the administrative costs would almost certainly result in reduced commission payments to brokers both short-term and long-term.  The math is relatively straightforward especially as it relates to individual health insurance policies.  Carriers generally need 7-9 percent of premium for administrative costs.  They would like to see profit of 4-5 percent on this business, which leaves 6-9 percent for distribution costs.  Given that in some states the first year commission on individual policies is 20 percent, declining to 5-10 percent for renewals; brokers may be looking at a significant pay cut. 

While it is still possible the NAIC will exclude commissions from the MLR calculation, it remains a bit of a long shot.  However, if commissions are cut too deeply, brokers will either leave the market altogether or will look to negotiate separate incentive compensation payment arrangements with their customers.  As expected, insurance brokers will be looking towards October 21 for guidance on what to expect for future earnings.

Compliance with the Sarbanes-Oxley Act (SOX) is a major part of today’s corporate culture. The threat of non-compliance, its financial headaches, and worse yet, the specter of legal penalties to the highest levels of a corporation, appear to ...

Compliance with the Sarbanes-Oxley Act (SOX) is a major part of today’s corporate culture. The threat of non-compliance, its financial headaches, and worse yet, the specter of legal penalties to the highest levels of a corporation, appear to have achieved one of the Act’s goals. Organizations take compliance very seriously.

One of the most important elements of SOX compliance is providing evidence that the financial applications and supporting systems and services provide the controls and audit trails that ensure financial reports can be trusted. Concerns with improving governance of outlays for leveraged resources, especially when commission costs typically exceed the equivalent of 5% - 10% of revenue, are driving companies to take a closer look at sales incentive compensation processes that are often manually administered through spreadsheets, email chains, and Post-it notes. In greater numbers, and with more frequency, those departments responsible for administering sales incentive compensation are undergoing formal audits by internal or external auditors. In turn, these auditors are identifying a lack of financial controls and audit trails within sales incentive compensation processes that expose the organization to the risks associated with non-compliance and inaccurate financial reporting.

One of the key areas often cited during these formal audits is the practice of using off-cycle, manual payments to sales professionals as a means of making an adjustment to their sales incentive earnings. These manual adjustments are often made in response to the high degree of flexibility demanded by sales leadership whose focus is on maintaining a motivated sales force and retaining their top producers. These manual adjustments are typically initiated through phone calls or emails and ultimately result in an off-cycle payment being made without a formal audit trail of the request or a means by which the payment can be associated with the original sales transaction. Consider one Fortune 500 company that was hit with a lawsuit from a disgruntled former sales professional who claimed the company owed outstanding commissions on sales transactions where he should have received credit. The companies’ position was that the outstanding commissions on these sales transactions had been paid to the sales executive through off-cycle manual adjustments. With no audit trail of these manual adjustments, association of the off-cycle payment with the original sales transaction, or documentation of the payment on the sales professionals incentive compensation statement, the company was ultimately forced to settle the lawsuit out of court and make full payment to the sales professional.

Sales Performance Management (SPM) solutions address the lack of controls and audit trails associated with off-cycle, manual payments by integrating workflow engines that capture each request, track their progress, and provide a full audit trail of all actions. Financial officers looking to implement repeatable processes and financial controls to improve governance within their sales incentive processes are among the first to embrace these next-generation solutions.

Consider the value of integrated, workflow-enabled business processes in the following real life scenario.

Step 1: Define and Configure Workflow Event

An integrated workflow engine enables a business analyst to define a repeatable business process within the context of a workflow event. The workflow event is configured with information specific to that business process including items such as event initiation, approval hierarchies, and event resolution. For instance, a sales dispute request submitted by a sales professional may require that certain information be captured when the request is initiated, that the request is routed to the appropriate person for investigation, that certain individuals or job roles within a hierarchy must approve an action associated with the request, and that any potential payment adjustment must be associated with the original sales transaction. The workflow engine manages the workflow event and a full audit trail of all actions performed is captured.

Step 2: Initiate Workflow Request

The sales professional initiates the commission dispute request through a rich, web-based user interface that validates all required information has been captured, enables the sales professional to attach supporting documentation such as a copy of the sales order, and routes the request to the appropriate person identified by the approval hierarchy.

Step 3: Investigate and Approve

The workflow engine passes the commission dispute request to the first line of research defined within the business process – likely a compensation analyst. The compensation analyst reviews all of the information contained in the request and performs any required research to determine the appropriate action. At this point, the compensation analyst may approve or deny the request, ask the sales professional for additional information, or escalate the request through an approval hierarchy that may contain roles such as the Sales Manager and the VP of Sales. Whatever the action, the request is being managed through a repeatable business process and a complete audit trail is being captured.

Step 4: Resolution

The final step in the process is to ensure the manual adjustment is associated with the original sales transaction or pre-defined reason code, and appears on the next
sales incentive compensation statement delivered to the sales professional. This ensures clear communication to the sales professional, completes the full audit trail of the manual adjustment and ensures compliance and financial controls within a business process that previously exposed the company to the risk of inaccurate financial reporting.

One of the major features of SOX is that it penalizes individuals, not just companies, for non-compliance. CFO’s are under immense pressure, both professionally and personally, to ensure financial applications and supporting systems and services provide the controls and audit trails that ensure financial reports can be trusted. Automating these manual business processes using workflow engines integrated within the Sales Performance Management solution provides the financial controls and audit trails that CFO’s can rely upon.