Incentive Compensation — two words that can both delight sales professionals and equally cause dissent and dissatisfaction among the ranks. The first reaction is when an Incentive Compensation Management (ICM) program pays out and makes sense; the other when there is a lack of transparency, inequity, and possible underpayments. And when that becomes a pattern, and the problem is left untreated. people will inevitably start to look for a new place of employment where perhaps the rewards scheme is robust and fair. In this blog, we’ll address the issues, but provide solutions such as how a solid ICM software platform can not only provide the numbers across the organization but is the source of a compensation and benefits scheme that will keep everyone engaged and incentivized.
What is the Definition of Accurate, Timely, and Transparent Incentive Compensation?
Before we look at the key pain points that can get in the way, let’s summarize what the ATTIC ideal should be.
- Accurate: Free from error, whether that’s manual data input or miscalculation
- Timely: Commission is paid exactly when promised without delay
- Transparent: The ICM program is visible and fair to everyone
- Incentive: The scheme is robust, rewarding, and…
- Compensation: … achievable when organized and maintained with ICM software.
Common Problems and Solutions
1. Underpayments and Overpayments: The Numbers are All Wrong
This issue is as old as time. Whether it’s down to multiple inputting systems, the rate of error that comes with manual data input into spreadsheet systems, or the software itself not being able to cope, one of the biggest bugbears for sales professionals is that someone or something doesn’t get the Math. And when the numbers don’t add up in the right direction suggesting underpayment, that’s a strong enough reason for some to consider their employment options. According to Forrester Total Economic Impact Report on the economic impact of having a Sales Performance Management System (SPM), when reviewing the probability of error with a manual system the same attention needs to be paid to overpayment as well. The organization monitored for the report had a track record for this, but once they adopted a universal ICM software platform, a reduction in overpayments meant subsequent pay-outs were 90 percent more accurate.¹
2. Shadow Accounting and Payment Queries: Lack of Trust
As soon as there’s doubt over the accuracy of incentive compensation and bonus payments, the habit of shadow accounting starts to creep in. This is a very typical reaction in any sales structure where there is a lack of trust in the payment process, even if there is an SPM software tool in place. It’s common for sales executives to spend an inordinate amount of time cross-referencing their variable compensation, which results in them either agreeing with results or challenging them. The level of frustration caused by a lack of transparency increases if submitting a subsequent payment query is not a straightforward process. All of this was noted in the Forrester Report, which you can download here, and following the implementation of the Varicent SPM solution, the result was a noteworthy 60 percent of time saved due to a reduction in shadow accounting.² Thus, leading to greater efficiencies in the way sales executives use their working time.
3. Accurate Numbers Mean Happier Stakeholder and Auditors
It’s not just those sales executives on the Incentive Compensation Program that need the reassurance of accurate reporting. Auditors and anyone else at the accounting end of a commission or bonus scheme find that their job is a whole lot easier and more manageable when they are less swamped with payment queries or trying to firefight the raging onslaught of shadow accounting submissions. The Forester Report estimated that there was an 80 percent reduction in the time spent on auditing and compliance with the introduction of a universal ICM platform. When the numbers guys are working from the same platform as the rest of the team, they’re able to proceed with making sure the actual system is robust rather than looking out for numerical glitches or accounting errors. And when you then look up toward the boardroom, the department heads and stakeholders are kept happy with more justifiable pay-outs. Automated commission calculations and easy-to-read dashboards are there to make commission structuring as transparent as possible for everyone.
4. Trust in the Compensation Program, Trust in the Software, Trust in Each Other
No, that’s not some new company slogan, although it does have a certain ring to it. When a team of experienced sales professionals is satisfied that the incentive compensation program, they are part of is working, this has a positive effect on how they co-operate with each other, overall attitude to the job, while reducing the chances of high performers seeking greener employment pastures. A robust incentive compensation platform can provide not just precise and current compensation calculations but make the whole process much more transparent as everyone involved can monitor team, territories, and quota fulfillment against any commission scheme, as well as the rankings and figures of individuals. Without the fear of secret commission deals, or private bonus arrangements, the “cult of the individual” within the sales world is somewhat tempered to make way for the “age of the team player”.
While some other factors in the incentive compensation conversation are hard to quantify, and probably more of a trickle-down effect of the stuff we can actually put statistics against, the case for a reliable, integrated, and fully customizable incentive compensation software package is strong. A strong ICM platform such as Varicent will also address any potential compensation scheme issues as part of the build and customer-client relationship. With the Varicent ICM solution, not only are the numbers on tap and the targets reliably calculated but features such as Workflow Manager and Scheduler make accurate and transparent auditing even simpler.
Read the full Forrester report by downloading it here, and discover how the Varicent software solution could transform your sales teams.
¹. Page 16 The Total Economic Impact of Varicent SPM
². Page 18 The Total Economic Impact of Varicent SPM