Spreadsheets are the Dark Side of Compensation Management … Resist Them, You Must
We are mere weeks away from the opening of Star Wars: The Force Awakens. These days, you can scarcely walk into a store without seeing the full impact of Star Wars mania taking hold – from clothing to gum … to Campbell’s Soup. We’d be lying if we claimed we aren’t counting the days ourselves.
The movie trailers thus far paint an ominous environment, one in which the Dark Side has risen again to challenge all that is sacred and peaceful. And it got us thinking about the Dark Emperor in our own world – spreadsheets.
Despite the valiant efforts of compensation administrators everywhere, the dark force is strong with spreadsheets. They promise the ability to easily track compensation and pay reps in a timely manner … only to let you down and crush your dreams quarter after quarter.
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 crush 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:
- 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.
- 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.
- 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.
- They Lead to Sub-Optimal Compensation Plans – Lack 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 (insert Darth Vadar breathing).”
- 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…
2015 Sales Compensation Administration Best Practices Survey
Over 100 companies participated in Xactly’s inaugural Sales Compensation Administration Best Practices Survey and provided us with information around the processes, approaches, and technologies they use to design and administer their sales compensation programs.