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The Dark Side of Compensation Management: May the 4th Be With You!

7 min read

There has been an awakening... have you felt it? Star Wars is back on the cultural main stage, with the recent release of Episode 7 and the impending release of Rogue One, there is much to celebrate if you're a fan of galaxies far, far away. Because tomorrow is Star Wars Day (May the 4th Be With You!), we wanted to kick off the festivities early with our take on the dark side of comp management! The most recent installment of the movie painted an ominous picture of resurgence; of the dark side's return to power over the defeat of the emperor. In our own world, the good fight has begun, with automation leading the charge against manual errors. But there is still a phantom menace to be dealt with, an insidious power we have yet to defeat - spreadsheets. Despite the rebellious efforts of compensation administrators everywhere, the force is strong with spreadsheets. They promise the ability to easily track compensation and pay reps in a timely manner… but alter the deal with errors and miscalculations quarter after quarter. Pray they do not alter it further! The evil in spreadsheets is deeply rooted, and try as you might to resist, they expose your businesses to unnecessary headaches and risk. They deceive you about the numbers, withhold important data insights, wreak havoc on forecasting, and force choke rep engagement and motivation. In short, they are simply the wrong tool for the job. Here are five reasons that spreadsheets are the Sith Lord of compensation management:

  1. They Breed Mistrust – If you are using spreadsheets, you have likely spent a fair amount of time with sales reps disputing their compensation. No doubt this is where you use your best Darth Vader voice and add, “I find your lack of faith disturbing.” But truth be told, when using spreadsheets to manage compensation, it is just as easy to underpay a rep, as it is to overpay. Even this perception creates mistrust between sales and finance, leading to time-wasting disputes that distract people across both organizations from their strategic missions.
  1. They Have High Error Rates – Spreadsheet-based processes are notoriously error prone. According to Gartner, managing compensation through such manual processes is subject to an error rate of anywhere between three to eight percent. For a larger company, it might be even higher. Run those percentages against a $1 million cost center with just 10 sales reps, and it is easy to see how managing commissions on spreadsheets can end up significantly costing a company in over payments. We’re talking enough to repair the death star, here.
  1. They Mask the Truth – When compensation is managed via spreadsheets, reps lack real-time visibility into how they are doing compared to quota and how aligned they are to corporate goals. They can’t even see how large their next commission check is going to be. And if reps have to wait until several weeks after quarterly close to see that next check, then it is usually too late to influence better, more strategic sales behaviors. When a company can’t leverage compensation as a lever to drive a more aligned, motivated, and results-driven sales team, uncertain its future is.
  1. They Lead to Sub-Optimal Compensation PlansLack of visibility extends to the creation of compensation plans as well. Spreadsheets don’t yield the timely and accurate data (both historical and real-time) and insights required to develop the most effective plans. It is also extremely difficult to make changes to existing plans on spreadsheets; meaning companies can’t realign to move the changing dynamics of their business. With no clear visibility and mechanism to alter plans, companies leave themselves open to a bevy of potential pitfalls. Plus, it thwarts an admin’s ability to throw in the classic, “I am altering the deal, pray I do not alter it any further.”
  1. They Cause Poor Financial Forecasting – As noted above, spreadsheets are prone to errors. Not only is this an issue in the payment of commissions, but in forecasting future commissions and how they play into the overall financial numbers. In fact, in a new study by CSO Insights, respondents noted that the inability to forecast a new plan’s future economic impact is their biggest challenge. In the worst of cases, this can cause earnings-per-share projections to be materially off target, which of course rebounds on the company’s stock price. The jeopardy here isn’t just confined to bad quarters. A company can have a great quarter with most of its reps overachieving, and end up with an enormous expense shortfall as a result, leading perhaps to a restatement. And even in those quarters where the sales team underachieves, a company might still have to pay out in excess of forecast because reps learned how to game the plan (which, when managed correctly can be a good thing, but that’s a whole other discussion).

So, what have we learned? Continuing to manage sales compensation using spreadsheets will lead companies to the Dark Side, and present serious risks to their financial performance and potential. Automation is the Jedi master of sales compensation management, with a clear path to creating more intelligent, engaging, and manageable sales compensation program that drives results. May the force be with you