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Businesses today face the challenge of change—of growing in a market defined by sustained volatility and technological disruption. As organizations mature, central business roles must also evolve to meet the challenges of growth and organizational complexity.
The role of sales compensation leader illustrates, perhaps better than any other role in modern business, the lockstep relationship of business growth and evolving business roles. Today, the responsibilities of the sales compensation leader—variously called the incentive compensation manager, the director of compensation and benefits, the director of distribution, the director of sales operations and so forth—have changed in response to both organizational success and the increasing complexity of sales incentive hierarchies.
The evolving role of the sales compensation leader, and its relationship to organizational success and continued growth, is manifest in the sales performance management (SPM) maturity curve, depicted in Figure 1.
Figure 1: SPM maturity curve
Looking at the SPM maturity curve, we see that as organizations grow and increase in complexity, their sales performance management also must necessarily grow in both competency and value, driving the organization from pre–incentive compensation management (ICM) chaos to stabilized business operations. To bring about this transition, sales performance leaders can take the lead in implementing ICM software capable of optimizing decisions and processes across the enterprise.
In short, the evolving role—and the success—of sales compensation leaders parallels their own organizations’ growth and success. Let’s examine this progression in detail by looking at each stage of the SPM maturity curve.
Stage 1: Coping with chaos
According to research on SPM conducted by Ventana, 67 percent of businesses remain in a chaotic pre-ICM stage, relying on a patchwork of spreadsheets, email, manual processes and outdated legacy systems to manage and administer variable compensation plans. The role of the sales compensation leader centers on dealing with these and other challenges to efficient sales operations—all while planning for future growth. During this early stage, the most common problems that face sales compensation leaders include the following:
- Heightened complexity and growing transaction volumes
Variable compensation plans can be very complex, and some compensation leaders must manage plans across multiple geographic regions and business units. Using spreadsheet tools such as Excel to manage such complexity and volume becomes increasingly difficult as an organization grows.
- Costly errors and overpayments
Manual calculations of complex compensation plans are prone to error. One IBM customer in the financial industry observed that before implementing ICM software, the “cost of errors and commission overpayments were estimated at greater than $1 million per year.”
- Lost sales time
According to research conducted by Aite, many sales representatives distrust manual systems and accordingly often use “their own compensation tracking documents … to double-check their compensation departments’ calculations.” However, time spent in “shadow accounting” is time not spent in selling.
- Inefficiency and wasted time
Using spreadsheets to handle multiple complex compensation plans can eat up a sales compensation leader’s time, particularly when changes cannot be made efficiently. For example, before implementing an ICM solution, one IBM digital media customer had to manipulate 16 spreadsheets for every change that occurred in a single compensation plan.
- Audit and compliance reporting challenges
Audit and compliance issues are at the forefront of the minds of sales compensation leaders, especially those who work in the banking and insurance industries. However, sales compensation leaders who use manual systems can encounter great difficulty producing reports required during audits, exposing their companies to a significant risk of noncompliance.
Stage 2: Stabilizing sales operations
In the next phase of the SPM maturity curve, the sales compensation leader identifies and implements solutions to the challenges encountered during the pre-ICM stage. Typically, a sales compensation leader convinces the leadership team of the importance of meeting the challenges that accompany growth. Moreover, as these challenges become apparent with time, prompting organizational investment in ICM software, the job description of the sales performance leader evolves to include acting as an agent of organizational transformation.
Shortly after deploying ICM software, firms may begin realizing early benefits of implementation as a result of having stabilized sales operations, heightened accuracy, cut costs and boosted sales performance. During this middle stage, ICM software typically offers the following benefits:
- Cut costs
Automating commission calculations can significantly cut compensation administration costs by avoiding calculation errors that lead to overpayments and payment disputes. According to Gartner, ICM software can reduce errors by more than 90 percent.
- Visibility into pay
Incentive compensation management solutions can give sales professionals an unprecedented a degree of visibility into their pay, helping them avoid wasting time and energy in attempts to reconcile their commissions. Moreover, the ability to transparently track both pay and performance helps motivate sellers, driving sales for the organization.
Figure 2: IBM SPM customer comments
- Accuracy and auditability
ICM solutions bring both accuracy and auditability to compensation management. Using such an approach, an organization can enjoy a detailed view of the entire compensation plan portfolio as well as a degree of control over sales compensation sufficient to help meet audit requirements.
- Heightened efficiency
Compensation teams that use ICM solutions can dramatically boost their productivity, whether by implementing plans quickly, responding to business imperatives efficiently or simply making payout deadlines. According to Gartner, organizations that have invested in ICM have cut their processing time by more than 50 percent.
- Alignment with corporate growth strategies
ICM solutions can play a central role in systematically defining and rewarding contributions that advance corporate growth strategies.
Stage 3: Optimizing decisions and processes
The final stage of the SPM maturity curve sees sales compensation leaders bringing their greatest value to an organization. During this stage, the significant return on investment (ROI) offered by ICM becomes evident across the enterprise, allowing the sales compensation leader to focus on using analytics to optimize decisions and processes.
Implementing ICM solutions gives the sales compensation leader unprecedented levels of access to essential operational data points, among them the following:
- Sales by product, payee, territory and month
- Compensation by plan type, component, payee and month
- Territory hierarchy by country, region, state and city
- Payee hierarchy by payee manager
- Tenure with company
- Performance rating
- Salary levels
Sales compensation leaders can import this ICM data into a predictive analytics solution—such as that offered by IBM SPM—to give C-suite and board-level decision makers insights that can help them plan for and take advantage of growth opportunities. Indeed, ICM solutions and technologies poise sales compensation leaders to provide insights that can allow them to create real value for their organization—including by doing the following:
- Helping sales representatives prioritize leads
- Designing effective compensation plans
- Ensuring the hiring of ideal sellers
- Setting intelligent quotas while making smart decisions about territory management