Posted by: David Kelly
on Aug 12, 2011
Sales Performance Management (SPM) is all about empowering, incenting, measuring, and eventually paying the sales force to align its behaviors and tactics with corporate goals. The compensation plan is a key part of the SPM process. Ideally, it rewards the payees for doing what the company needs them to do. If your sales force is focused on doing things for their own benefit that will also benefit your company, it becomes a win-win.
The payees’ perception of the comp program should always be, “If I do this good thing (sell more, sell more profitably, or sell a better product mix), I will earn this reward.” The value is lost when it turns into, “I did this good thing (at least, I think I did…), now where’s my money?” At the end of the day, the same good things might be accomplished, the same rewards paid, but the willingness to do the next good thing might well be compromised when the commission or bonus is seen as payment due to be fought for, rather than as something to aspire to.
What this means to Sales Ops and Finance is that a compensation system that is perceived as an impediment to collecting commissions and bonuses will bring the ROI for the whole incentive compensation program into doubt among the very people who should be trying to find ways to earn more rewards. Every step forward they make will be immediately followed by a look back to see if the comp system is keeping up.
There are many ways an ICM system can become a roadblock in the sales incentive process.
The ones we have seen most commonly include:
- Inaccuracy
- Lack of transparency
- Unnecessary complication
INACCURACY: Almost any comp system more sophisticated than long-hand calculations on yellow stickies should be able to calculate accurately – assuming it is operating on good data, and assuming it is configured properly, that is, set up in accordance with your business rules. Of course, these two assumptions can be pretty big “ifs.” And sometimes it takes a data rationalization project to address one or both of these issues. But either way, if the commission and bonus calculations coming out of your comp system aren’t correct, the payees will spend more time looking back at old deals than looking forward to new ones.
LACK OF TRANSPARENCY: Even if the comp system calculates properly, if it isn’t clear and explicit about what has been credited and how much is being paid according to what rules, the users will not have confidence in it and will spend an unacceptable percentage of their potential selling time checking up on it. Thoughtful reporting of meaningful metrics and useful information will go a long way towards redirecting the payees’ attention forward towards selling instead of looking in the rearview mirror.
UNNECESSARY COMPLICATION: Can your sales force describe in 25-words-or-less exactly what they must do to optimize their commission checks and help your company achieve its goals? Or do you have so many complex terms and conditions wrapped around the sales compensation process that no one can answer that question? The most accurate and transparent comp system in the world won’t counteract the negative effects of 15 pages of legalese tacked onto a comp plan, especially when the legalese is all about the reasons why business won’t count towards the payees’ incentive comp. A system implementation project can be a good time to revisit the language and logic of the plans to get to a simpler model that the payees can understand and work towards, rather than one to be deciphered after each deal is reported.
Compensation systems and processes are all about changing “wrong” behaviors and reinforcing “right” behaviors. It’s as much a psychological problem as a technical one. It’s reasonably easy to get the right answer, eventually. But you have to make it easy for the payees to do the right thing. Making them fight for what you’ve promised them takes their concentration off the next deal, and this has a direct impact on top line revenue.
---------------------------------
Author: David Kelly
David Kelly is an Incentive Compensation Management (ICM) Solutions Architect with Merced Systems. He has more than a decade of experience in translating ICM business requirements into maintainable, high-performing systems for many companies across various industries. He can be reached at david.kelly@mercedsystems.com.
Posted by: David Kelly
on Sep 15, 2010
An SPM system can be one of the most complex systems in a company’s business environment because it solves one of the most complex problems a company has. The system’s job is to help align sales force behaviors with the company’s strategic goals. Good data – about the payees, about the company’s business drivers, about the plan elements like quotas and rates, and about the sales events – is critical to the process. Sourcing and maintaining that data is a significant challenge faced on every SPM project. Where the data is suspect – due to inaccuracy, untimeliness, or incompleteness – it puts the effectiveness of the entire SPM program at risk; the Payees begin concentrating more on making sure they’re being paid (at least) as much as (they think) they deserve and less on selling.
Quantum physics aside, let’s consider it a Law of the Universe that when you know two “facts” about the same thing, those facts probably ought to agree with each other, or at least, not disagree with each other too much. This puts us in the position of wanting to have different systems in a company’s business and IT infrastructure all agree about the facts of an event as much as possible. When multiple systems track the same event, but each has its own rules and ways of representing it, you open the door for disconnects.
As an example, your CRM system has the Sales Rep’s best guess about what the revenue for a potential sale will be. The system in which the order is booked will have an event (or several) that looks a lot like the event in the CRM system, but which could well have different values, dates, or rules applied. The fulfillment or supply chain management system might treat the business event completely differently (Widgets are out of stock until next month and will be shipped separately), and this might (or might not) be reflected in the invoicing system. Then G/L gets its hands on the financial side of the event (can’t recognize the revenue for those Rugalators until we get the acceptance doc from the customer). The odds are that some of these systems don’t play and share well with each other. But these are the systems that could be feeding events to the incentive compensation management system. So what is the “truth” of that sale? Ask the sales rep, and she will tell you it’s the number she entered in the CRM system, and what’s up with the stupid commissions system that it can’t even pay on the right amount?
In a way, the truth doesn’t matter, so long as we can find some version of reality that we can all settle on. If you have a nice chunky data warehouse that we can agree is the single source of truth (regardless of what the source systems say), it makes it easier to calculate, pay, report and justify incentives. But if the source of truth is disparate upstream systems, yellow stickies and voice mails, it becomes harder. Maintenance and synchronization of shared data becomes an important architectural consideration for bringing an incentive compensation system online. If shared data can be edited in one system, then all the other systems that use that data must be notified of the changes as well if the systems are ever to be reconciled. So the point to all of this is that your compensation plans are not necessarily the hardest part of your SPM implementation. The SPM system has tentacles that touch most systems in your company, and the interactions between them bring challenges that must be addressed as thoroughly as the comp plan “math”. Otherwise, truth can become a pretty slippery concept.
--------------------------
Author: David Kelly
David Kelly is an ICM Solutions Architect with Merced Systems. He has more than a decade of experience in translating ICM business requirements into maintainable, high-performing systems for many companies across various industries. He can be reached at david.kelly@mercedsystems.com.
Posted by: David Kelly
on Apr 27, 2010
Incentive Compensation Management in Sales Operations can be the strangest of corporate beasts. Sure, it’s a cold, hard, financial problem, but it’s a soft, squishy, psychological one too. You are using money or other rewards as a lever to try to modify the behavior of your sales people, but the lever isn’t applied directly to the behavior. At best, you pay on the outcomes of the behaviors after the revenue recognition process and the comp plan terms and conditions have been applied.
What this distinction can lead to is the need to make exceptions to the rules when the right behaviors haven’t led to the right results.
The most obvious example of this is when the economy crashes and burns. The collapse of the Asian economy in the late ‘90s caused comp plans to be rewritten, quotas to be slashed, and drastic measures like guaranteed incentive payments to be slammed into place to keep the sales force alive and selling through the downturn.
In this kind of situation it’s critical to do what’s “right” rather than what the comp plan says. Your sales guys didn’t cause the economic crisis, so holding them to the terms of the plan causes financial hardship to the people who made you successful the year before. You have to do what you can to keep your best reps productive until the economy comes back.
A more localized example is when Rep A lends an active hand on Rep B’s deal. The deal falls in Rep B’s sales territory, but you should absolutely give some credit (and commissions) for the deal to Rep A for the help given in landing the customer.
Okay, we all get it – ICM systems must support some level of exception-based payments. But the word “some” is important here. I’m reminded of a Comp Manager who told me that her company’s monthly process was to calculate commissions, print a report, and carry it to the VP of Sales. The VP would cross out the numbers and write in the amounts he felt like paying each rep. And that’s how much they paid.
I laughed. She didn’t. She was serious – that was their comp process. And that’s just insane. Random amounts of money showing up on the commission check each month do nothing to drive good selling behaviors. We’ve all seen comp plans with conditions like “if it’s Tuesday and a red car passes, pay an extra 25% unless we decide not to”. Do the reps really know how to behave with a plan like that? And we’ve all seen the situation where any sales rep who whines loudly enough gets to go to President’s Club, even when they haven’t earned the trip. That trip doesn’t do anything to make your company successful either.
The takeaway is that some exceptions to the rules must be made to keep the company on the right track. But some exceptions do nothing positive for the company, and sometimes can be insidiously harmful to the company’s long-term success. The comp admins know the difference, but often don’t have the authority to stop the harmful exceptions. It’s a top-down activity to make your compensation plan exceptions work for your company, not against it.
--------------------------
Author: David Kelly
David Kelly is an ICM Solutions Architect with Merced Systems. He has more than a decade of experience in translating ICM business requirements into maintainable, high-performing systems for many companies across various industries. He can be reached at david.kelly@mercedsystems.com.
Posted by: David Kelly
on Feb 23, 2010
Imagine, if you will, a large corporation consisting of multiple business units that are both home-grown and the result of mergers and acquisitions, all glommed together with integrated systems, policies, procedures, and cultures. Each of these business units produces disparate but hopefully complimentary products or services that the sales reps from each of the business units must then sell. Sometimes the metrics to which each rep works and for which they are compensated are the same, sometimes they are different, and sometimes they look the same but are measured differently. Not that a company like this really exists outside of our imaginations, but let’s pretend it does…
So let’s ask ourselves the question: What would a successful Incentive Compensation Management system deployment look like for this hypothetical company?
As it is so often the case, the answer is: It depends. It might be the big-bang enterprise-wide system replacement integrated with a thoughtfully designed data warehouse to bring all sales compensation together under one umbrella. It might be the surgical removal of a single set of spreadsheets for one business unit, replacing them with an auditable and scalable system to mitigate one set of risks that has the CFO lying awake at night. Or it might be something in between – maybe rationalizing comp plans and processes for the pair of business units with the highest incidence of accuracy issues.
Project success is what you decide it needs to be. And what you plan for it to be. And what you communicate it to be. These last two points are critical. Buying software and some consulting hours from a vendor are a fine start, of course. But there’s more. You’ll need to build a project team on your side as well, and they need to know exactly what success looks like too.
It sounds self-evident, but it’s all-too-common that the team on the ground hasn’t been given the vision. Given no guidance, they do the safest thing – they implement the current broken state of the world in new software. If process and system rationalization is what represents success to you, this project has to be judged as a failure.
How do you prevent this? Taking an active leadership role on the project Steering Committee is a good place to begin. When requirements gathering turns into a perfect storm of exceptions based on bad data meeting bad processes, someone who owns the vision of why the implementation project is taking place at all can step in and say, “That’s how we used to do it, but the new system won’t be set up that way in the future.”
Future blog entries will address communication and expectation setting, internally and externally, to assure that ICM project success – on your terms – is both achievable and achieved.
--------------------------
Author: David Kelly
David Kelly is an ICM Solutions Architect with Merced Systems. He has more than a decade of experience in translating ICM business requirements into maintainable, high-performing systems for many companies across various industries. He can be reached at david.kelly@mercedsystems.com.
