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5 Things You Can Do to Reduce Sales Commission Disputes

Sales commission disputes can cost companies significant time, money and aggravation. Not to mention the unsettling impact on the sales team who are often left to feel frustrated sifting through errors and miscalculations.

An effective Incentive Compensation Management (ICM) solution can help to reduce the incidence of sales commission disputes. With an automated system and a transparent calculation process, you can rest assured that your sales representatives spend less time “shadow accounting” or checking their commissions to make sure they are accurate.

While ICM solutions may lead to fewer errors, that doesn’t necessarily mean there will be fewer disputes. In a complex, fast-moving environment, there will undoubtedly be moments when sales reps feel the need to dispute their commission.

The good news is there are steps you can take to reduce the incidence of sales commission disputes.

1. Clear Communication of Compensation Plans

One of the best practices for reducing sales commission disputes is maintainingclear communication. By ensuring that everyone on the team is onboard and committed to the goals of the compensation strategies and the technology, you eliminate the likelihood of misunderstanding.

From the management team through to the front line reps, everyone should buy into the incentive compensation plans.

Effective training and consultation are fundamental to this process. For example, when the compensation plan is rolled out, communication with staff should be straightforward, timely, and should use a range of channels, including team meetings, all-hands forums, tutorials, plan documents and FAQs.

Many misunderstandings can be avoided if all parties appreciate the elements that define the compensation plan.  For example, for a plan based on gross margin, the clear definition of gross margin and what goes into calculating gross margin will cut out misconceptions and disputes due to different interpretations.  In addition, it is surprising how many sales representatives do not fully comprehend how their compensation plans work.

Transparency with the sales reps is also critical and helps to keep the lines of communication open. Reports should be made available so reps can keep track of their performance. When you reach end-of-period, accurate and timely payments with clear visibility into performance will help reinforce a positive pay for performance culture.

2. Leverage Better Visibility

Incentive Compensation Management (ICM) solutions also enhance managers’ ability to oversee sales activity and keep track of what’s happening. With enhanced visibility, managers can track sales transactions and follow the calculations right through to compensation results. In short – strong visibility and reporting offers greater insight into calculations and therefore reduces the likelihood of sales commission disputes.

Is there visibility into how discounts and credits may affect the sales transaction and therefore the compensation with which it is associated?  These things tend to come from different source systems than the sales transaction and are not always easily matched, but if these affect compensation, then visibility is a must in order to aid the sales resources to identify and understand what has impacted their compensation.

3. Empower the Team

Empowering your staff is always a best practice for raising performance and commitment. The same rule applies with your compensation strategy.

By giving your sales force the ability to see results, calculations and payouts, and the flexibility to adjust their activities as needed, you empower your team to take more ownership of the program. And an agile ICM solution also saves them the headache of having to manipulate data in an Excel spreadsheet. The focus stays on generating sales and not on tracking commissions, because reps have access to the information through reliable, consistent reporting.

Sales reps will appreciate the ability to see pipeline, qualified and pending-close transactions with potential earnings. Also, transactions flagged as non-compensable will reduce incidences of surprise.

When they are empowered with access and information, sales reps are much less likely to initiate sales commission disputes.

4. Give Managers Insight into Performance

As managers have better insight into the impact of incentive compensation plans on performance, they can more accurately build and maintain programs that reward the top performers.

By using actual results and being able to establish trending, a manager can identify where a sales representative needs the most support in the sales cycle and how to educate, empower, and encourage that rep.  In addition, trending will allow a manager to focus energies where they are needed, rather than determining at random where those energies should be focused. For example, a manager will have insight into what sells best in which territories and during what season.  Let’s face facts – fur lined boots aren’t really a hot seller in Miami, but may be in Alaska or Canada.

The ability to see actual quota or target attainment in a more ‘real time’ manner allows a manager to adjust and work with resources for achievement and success.  The ability to identify that there was one big sale that may be an outlier for a year that may throw off target setting, aids the organization is setting realistic and achievable goals for the next year.

And once they are armed with this insight, managers can end any potential confusion and frustration – and resulting disputes – about whether the performers are getting their due while ensuring that the organization is viable and sound.

5. Foresee Problems through Better Reporting

Incentive Compensation Management (ICM) also allows managers and organizations to anticipate issues before they become disputes.

With the right process and technology in place, compensation administrators have greater analysis and reporting capabilities to recognize issues prior to payment. Managers can identify and rectify issues such as missing or incorrect data or misaligned compensation plans before they turn into disputes.

There is nothing worse than finding out after the payout that a sales representative was not paid because they did not have a plan or weren’t in the system, and that somebody else may have been paid for their sales.

Rarely are there complaints about being overpaid, but there are many about getting underpaid.  The key is to find a system to be able to minimize payment errors, whether over, under, or the wrong person altogether.  Having clear communication and clear process tasks to manage this process is a definite plus.  In many cases, if the compensation analyst leaves, then there is no clearly defined task list (it was all in their head), and the process is then undermined. This stumbling tends to lead to more disputes, more confusion, and more misalignment.

Reduce Sales Commission Disputes

In a busy, complex environment, issues and disputes are inevitable. However, the vast majority of sales commission disputes are preventable. With the right technology, visibility, foresight and team dynamics, ICM can help organizations address their sales compensation issues before they become distractions from the focus of generating revenue.

To learn more about the significant benefits of ICM and the ways in which it can help you reduce sales commission disputes, contact Argano today.