Automating Incentive Compensation Plans

As organizations continue to re-evaluate their compensation strategies to adapt to the continuous changes in the economy and business landscape, incentive compensation is now top of mind for many Compensation professionals.

Companies are trying to reduce the errors, overpayments, and amount of effort it takes to manage their compensation processes while also implementing new and different plans that drive the right behavior for their sales team.

When incentive plans are managed through complicated and error-prone spreadsheets, and territory and quota plans are constantly changing, just getting an accurate view of payout results is difficult enough.

Benefits of Automating Incentive Compensation Plans

Organizations know that incentive compensation is key to driving sales behavior and hitting revenue targets. It’s why U.S. companies invest more than $200 billion on it, according to Harvard Business School.

1. Save time and money
   Automated systems can handle all calculations quickly and accurately. This can help to ensure that payments are made accurately and on time, and it can also help to improve communication and reporting.
2. Improve accuracy
   Automated systems are often more reliable than manual calculations, and they can also help to avoid human error. This can help to ensure that payments are accurate and that everyone is paid the correct amount.
3. Improve communication and reporting
   Automated systems can help to ensure that everyone who needs access to the information has easy access to it. This can help to improve transparency and accountability, and it can also help to ensure that everyone is on the same page.

Incentive compensation plan automation doesn’t just benefit sales managers and comp plan administrators – it has positive impacts on the entire business. Here are some examples:

1. Performance Management and Forecasting

Collecting rep performance data in a single system provides you with a real-world, historical view of their performance over time. This will help you understand the following:

• How and if their selling abilities are improving
• How they’ve reacted when they’re assigned to new territories
• The accuracy of their past efforts at judging their pipeline
• Other performance data that you can apply to your current forecast

These analyses are time-consuming and if you’re using Excel or manual methods, it usually means these analyses never happen. With an automated compensation management system, this data is usually readily available.

All this performance analysis will also lead to better forecasts – and better forecasts make sales a winner in the eyes of the entire organization.  

2. Managing Expenses

Finance should be ally in your efforts to automate incentive compensation management. According to Gartner, 3-5% of all sales compensation expenditures are overpayments.

With poorly managed commission systems, it’s easy to credit the wrong people with sales, or apply the wrong credit to multiple people. That results in over-payments—something few salespeople are likely to bring to the attention of their comp plan managers. Paying more for the sale drives up the cost of selling which affects your business’s bottom line. 

Automation allows you to identify and eliminate those overpayments. It allows you to eliminate overpayments out of the comp plan and put that money back into the company’s quarterly results. 

3. Human Resources

Sales reps may keep quiet about compensation errors made in their favor, but they are exceptionally vocal when it comes to mistakes that cost them money. The mistrust between managers and sales reps is very common in many organizations and does lead to turnover.

58% of companies reported that voluntary sales turnover was higher in 2020 than in 2019. Part of that is due to changes in the sales landscape that have opened more opportunities, but also because companies have failed to create environments where sales reps felt valued by their organizations. One example of this is concern over accurate commissions. That turnover puts the burden on HR, which is tasked to find new candidates. According to Workable, the average sales slot in 2020 took 48 days to fill.

If you have the industry average 27% sales turnover, your HR team is likely to be in constant sales recruitment mode. Cut that number down with an automated compensation solution, and their workload decreases. They now have more time to recruit for other parts of the business and to devote more time to your sales hires.

The Need for Sales Commission Software

If you are considering automating your incentive compensation plan, there are a few things to keep in mind when choosing a solution for your company:

1. Make sure that the system will meet your specific needs, now and in the future
2. Make sure that the system is reliable and accurate
3. Make sure that everyone who needs access to the system can easily learn how to use it

Succeeding with Automated Sales Compensation

When companies invest in compensation automation, they do it for specific reasons – but the benefits extend far beyond the sales department. Automating your incentive compensation plans can help you save time and money, improve forecasting accuracy, maximize profits, and improve communication and reporting – all to help you deliver positive measurable results.

To learn more on how you can deliver positive results with ICM automation, schedule a meeting here.