How to Drive Growth with Compensation
In our recent webinar with CFO Alliance, “How to Drive Growth with Compensation,” we discussed how the role of the modern CFOs is changing the view of incentives and growth strategies, all while remaining GAAP compliant. Below are 10 things we learned from Xactly CFO Elizabeth Salomon.
1. A Majority of Companies Are Still Using Excel to Track Commissions
In a poll of webinar attendees, 70 percent were using excel to track and manage commissions. The remaining attendees percent were using a dedicated commission solution, managed commissions as part of their ERP/accounting package, or were part of a company that did not have a need to calculate commissions.
According to Salomon, with the high likelihood of errors in spreadsheets, it’s hard to ignore the value in the opportunity to automate the compensation process and the insight gained from automation tools.
Watch the webinar, "CFO Corner: Using Compensation to Drive Strategic Growth," to hear Xactly CFO Elizabeth Salomon discuss commission expense accounting and metrics CFOs need to watch.
2. CFOs Are Playing a Key Role in Driving Company Strategy
Today’s CFOs are still focused on getting the financial statements right, understanding what happens in the company each quarter, funding the business, and dealing with public markets. However, they are beginning to play a larger key role in driving company strategies, specifically turning business strategies into finance strategies.
What excites Salomon about being a CFO in today’s world is that CFOs now more than ever must help the business build value, but they also need to help their company have a disciplined approach to innovation, making the right investments for growth, and understanding the operational drivers that help the business perform, including leading and lagging performance indicators.
3. You Need the Right Data in a Data-driven World
Salomon believes that as the world becomes more digital, “it’s imperative to create a culture of analytics,” more specifically, you need to gather data, but it should be the right data. In order to make the right decisions for the business, it’s important to have the most important data.
It’s important to understand early indicators of performance to address issues early on. For example, in marketing, it is helpful to know lead flow from top of funnel to sales accepted leads, the effectiveness of each marketing channel, etc.
4. CFOs are Facing Three Main Challenges
According to Salomon, today’s CFOs are facing three main challenges:
- Data and Metrics: To be effective in driving results, you have to have the right metrics and data to understand what’s happening in your company. You need to know your company’s key drivers for growth and find a handful of metrics that really help you dive into the performance and overall health of the company.
- Talent: In today’s competitive market, there is a war for top talent. It’s critical to have a compelling value proposition to attract and retain employees because the impact of top talent really makes a difference in company growth and success.
- Alignment: It’s important to maintain alignment between the executive board, investors, and the management team. Although it’s not always an obvious problem, it can create huge problems down the line when everyone has a different agenda. Be sure your strategy and execution plan are clear and everyone supports the plan.
5. It’s all in the Sales Compensation Plan Details
There’s no denying that sales incentives drive behavior, and sales compensation is a critical component of driving company strategy. What Salomon has learned throughout her career is the impact of a specific incentive plan element can have on sales behavior.
In fact, the behavior drivers lie in the details of the plan design, and you should focus on the most important behaviors to avoid overcomplicating the plan. One small provision in the sales compensation plan can have great results or unexpected consequences, which is why it’s valuable to have the ability to test and model plans before implementing them.
6. Finance Professionals are Becoming More Involved in Sales Planning
In the past, finance professionals were less involved in the overall sales planning process, spending most of their time in the accounting planning. In a poll, nearly 90 percent of webinar attendees (89 percent) were involved in accounting and analysis processes in sales planning.
The growing involvement shows the impact and importance of finance roles in driving business results. In fact, more than half of webinar attendees (67 percent) were involved in accounting, analysis, and planning processes.
7. Commission Expense Forecasting is More Important Than Ever
It’s vital for CFOs to have a solid competency in forecasting because you can’t manage the business without it. In her experience, Salomon says accurate commission expense accounting is one of the most important jobs of a CFO. Inaccurate forecasting can lead to several problems down the road.
One of the biggest lessons Salomon has learned is that commissions don’t always move the same as company sales do. In her experience, she has found herself in the situation where total sales is below target, but commissions are higher than target, depending on how compensation plans are built. It’s important to get granular detail to understand the possible outcomes and avoid paying higher commissions that total sales revenue.
8. More Than Half of Companies Haven’t Started Preparing for ASC 606
For public and international companies ASC 606 (IFRS 15) is three months into effect. Private companies have a few more months to prepare before the December 2018 implementation deadline, but 61 percent are still learning what is required under the new revenue recognition guidelines.
Nearly 25 percent are starting the implementation process, and 15 percent are already operating under the guidelines. For many companies, implementation has been a continued learning process to define the necessary data and adjustments to remain GAAP compliant.
9. There are 3 Critical Success Factors for Mergers & Acquisitions
Mergers and acquisitions can wreak havoc on sales compensation. Salomon says there are three critical factors for a successful merger and acquisition:
- Picking the Right Strategy Upfront: It’s important to select the right strategy for your business–buy, build, or borrow and make sure that the financial model makes sense and will help grow the business.
- Clear Strategy Around Integration: After the initial excitement dies down post-merger or acquisition, it’s important to focus on integration to realize the strategic benefits you laid out upfront.
- Communication is Key: Merger and acquisitions can cause confusion and concern. Communicating the compensation plan with sales reps clearly will help avoid uncertainty and encourage reps to continue closing deals.
10. It’s Important to Keep Up-to-date on Continuing Education Opportunities
As a finance professional it can be difficult to stay up-to-date with changing regulations and strategies, but it is a vital part of the job. Although some finance positions are required to earn continued education hours, there are other ways to stay ahead of important changes.
Salomon recommends finding reliable sources to gather information from on a daily basis and continuing to seek out new information. She receives daily newsletters, stays in touch with networking groups, and listens to business podcasts, such as the Nightly Business Report.
Ready to drive growth with your compensation? Schedule your personalized Xactly demo today!