Successful business leaders understand the importance of incentivizing performance. As a result, most companies use incentive compensation, such as sales commissions or bonuses, to align individual behaviors with corporate objectives.
However, we often encounter organizations that have outgrown their incentive compensation processes. Usually, they are using Excel spreadsheets or a homegrown solution that is rigid, unreliable and error prone. Sometimes we see organizations who have new software, but a poor implementation that just doesn’t work.
Interested in benchmarking how your organization stacks up? Review these signs that your Incentive Compensation Management system needs to be replaced:
Overpayments and Inefficiencies
A poorly managed incentive compensation process leads to errors and causes both overpayments and underpayments. And both error types will cost you time and money.
Unfortunately, overpayments are common. Gartner has estimated that manual systems overpay by 2-8% each year. Overpayments are often missed internally and can go unreported. In many cases, those funds are lost, forever.
Underpayments are also problematic. Underpayments cost the administrative time it takes to correct them, including time spent by management to track and approve incentive pay adjustments. Furthermore, if a sales rep is concerned about underpayment, more time will be spent on “shadow accounting,” rather than selling.
Lack of Transparency
Incorrectly paying a sales representative negatively impacts trust. Trust will also be eroded if the incentive payment calculation is unclear and the rep is unable to trace commission payments back to actual transactions. If unresolved, this situation can result in a friction that undermines the employee’s loyalty and commitment. In addition, sales reps who do not understand their sales plans are more likely to be selling the wrong thing.
The good news is this problem can be avoided. A Sales Performance Management (SPM) solution empowers sales representatives by clearly reporting on incentive compensation payments as they relate to business activity, sales transactions, and other bonus targets.
Improving Workflow and Correcting Errors
Even with a perfect SPM solution in place, commission errors resulting from manual changes can still make their way to a sales rep’s paystub. Correcting commission errors can be time-consuming and difficult without the right system in place. Administrators need to be able to track down errors and reduce the time to resolution for errors that have been reported. As source corrections are made, they should be tracked in an audit trail to ensure compliance and reduce the opportunity for fraud. Finally, a best-in-class workflow will report status to all stakeholders, once again reinforcing transparency and trust.
Missing the Target
A poorly managed incentive compensation process can miss the mark. Rather than driving desired behavior, it can result in reps selling the wrong products or services.
Management reporting that ties sales rep results to sales rep activity is invaluable in diagnosing a misaligned compensation plan. If the data generated from reports is unreliable and error prone, then they cannot be used to make this diagnosis. But, with a well-implemented SPM solution, management has the tools available to make the right call on incentive compensation plan design.
Turning it Around
Each of these challenges are signs that your Incentive Compensation Management solution needs to be reviewed, audited and possibly replaced.
Intangent implements and advises on market-leading Sales Performance Management and Incentive Compensation Management solutions that help businesses incentivize and reward desired behavior. To learn more, contact us today.