Why You Should Automate Your Incentive Compensation Plan

Blog
May 03, 2021
3 min read
The most challenging part of investing in technology is getting buy-in from decision-makers. Discover how automating compensation management enables your sales team to achieve peak performance, precise forecasting, and effective data analysis.

Automating sales incentive compensation has obvious and immediate benefits for sales and for the people who facilitate sales. Comp plan managers have more time to work strategically with sales managers to create more effective plans which translates to spending less time dealing with sales reps’ complaints.

Salespeople can see exactly where they stand on their current compensation. Information goes where it needs to go to help with coaching, forecasting, and territory development. It helps create a healthier and more harmonious environment while improving your sales numbers. Who could stand in the way of that?

According to the 2021 State of Global Enterprise Sales Performance Report, the most influential factor in sales planning decision-making was  “doing things the way they have always been done.” That was one point higher than “data analytics and intelligent analysis,” which is revealing.

Yes, change is a challenge - perversely, more so when your sales organization is successful. “If it ain’t broke, don’t fix it” is a pleasant way to justify putting off repairing a squeaky washing machine or a creaky door hinge, but it's not going to cut it for your sales plans. It creates a dangerous way to rationalize delaying improvements on how you manage compensation. 

Incentive compensation plan automation doesn’t just affect sales managers and comp plan administrators - it has positive implications for the entire business. Need some examples? 

1. Forecasting

Here’s the most obvious one. Collecting rep performance data in a single system provides you with a real-world, historical view of their performance - not just for this quarter, but over time.

That allows you to understand the following:

  • How their selling abilities are improving (or not)
  • 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.

Using the manual method, these analyses are time-consuming - which, to be perfectly candid, usually means these analyses never happen. With an automated compensation management system, this data is available literally at the push of a button. 

This level of detail leads to better forecasts - and better forecasts make sales a winner in the eyes of the entire organization.  

2. Managing Comp Expenses

Speaking of being a hero, finance should be a major ally in your efforts to automate incentive compensation management. The average company spends 10 percent of annual revenue on compensation. According to Gartner, 3-5 percent of all sales compensation expenditures are overpayments.

Example: If your business does $100 million a year in sales, and you pay a 10 percent commission, that means you’re giving your sales force an extra $300,000-$800,000 per year for work they’re already being paid for. 

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 takes a bite out of 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 legendary within some organizations. According to one comp plan leader, the first four hours of every day were spent managing disputes with reps over commissions.

That’s a drag for the comp plan manager, but it eventually becomes a problem for human resources, too. As the 2021 State of Global Enterprise Sales Performance Report revealed, sales turnover rose in 2020. 58 percent 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 percent sales turnover, your HR team is likely to be in constant sales recruitment mode. Cut that number to 15 percent, 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.

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. If your organization wants to improve forecasting accuracy, sales tenure, or maximizing profits, compensation automation is a secret weapon that can deliver results. 

To learn more, download our 2021 Guide to Successfully Managing Sales Compensation.

  • Incentive Compensation
Author
Chris Bucholtz, Director of Content Marketing at Xactly
Chris Bucholtz
,
Director of Content Marketing

Chris Bucholtz is Xactly's Director of Content Marketing. A columnist for CRM Buyer, he was a technology journalist for 15 years and has directed content marketing for several top SaaS CRM and sales performance management companies.