3 Critical Incentive Compensation Compliance Factors

Maintaining an effective Incentive Compensation Management (ICM) system requires focusing on some critical incentive compensation compliance factors.

One of ICM’s key benefits is the maintenance of historical data. A company’s historical datasets have many uses:

• Strategic planning
• Management reporting
• Analyzing the compensation plan
• Meeting compliance standards

When it comes to meeting those regulatory standards, there are some critical incentive compensation compliance factors to keep in mind.

Audit Logging for Compliance

In any ICM system, all data changes must be tracked. It is essential to maintaining accuracy and a clear picture of how your compensation plan is driving your overall goals.

Whether a change was accidental or intentional, it must be logged. Inevitably, your ICM system will yield certain results, and you will want to examine what is happening. It’s important that the system allows you to quickly identify where and when any changes were introduced.

All changes must also be traced back to the individual user who made the revisions. For that reason, every person should have an individual login so the system can attach certain activities to the specific user.

An effective tool will identify where rates or bonus numbers were changed, where guarantees or draws were revised, and the staff person who modified them.

Locking and History

There are solid reasons for tracking data.

Developing your compensation plan, strategic planning, forecasting for future trajectories – each of these functions is ultimately tied to historical data.

These data records are the “historical truth” of your performance.

However, that historical truth can also change. The inbound data – those data streams that populate the historical records – are constantly changing as orders, deliveries, contracts, customers and sales teams continue to evolve.

Locking ensures the historical truths are maintained.

Locking that data and ensuring that baseline is fundamental to keeping your compensation program properly aligned. Compensation rewards that have already been paid out must reflect their historical origins. If they do not, then you will not be able to see if your sales performance is aligned with your corporate goals.

There is an added bonus to locking your data — your system will run faster when you are not forced to recalculate the old data.

Change Management for Incentive Compensation Compliance Factors

The business environment changes constantly. Changes to markets, industries, customers and product lines means your compensation plan will also change constantly.

Changing the compensation plan requires you to design, test and implement the changes. Moreover, those changes must be tracked and logged.

This entire process – designing, testing, implementing – needs a well-considered change management plan to avoid any unwanted strain on the system. Each of your stakeholders – sales team, analysts and administrators – are undoubtedly sensitive to changes in the process. It’s important to make changes as seamlessly as possible.

A well-thought out change management plan ensures:

• Fewer mistakes
• Fewer surprises
• Greater accountability through change logs
• Better communication with stakeholders

An Effective ICM System Considers 3 Critical Compliance Factors

Your ICM system is more than a tool for aligning your incentive compensation plans with your overall company goals. It’s your database for transactions, sales, team performance and establishing your baseline for revenues and growth.

• Log every change, even if it’s accidental
• Make sure individual users are identified
• Lock data to maintain your “historical truths”
• Be prepared for changes – have a thoughtful, proactive change management plan

These critical compliance factors will optimize your system’s performance and meet your incentive compensation compliance standards.