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Overpayments: A costly SPM mistake

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People make mistakes in all aspects of life; it’s not exactly headline news when it happens. If you have ever hit “reply all” by mistake, forgot to set an alarm for an early morning flight, or as I did last week, misjudge your sporting prowess and end up with a bang to the head, you will know in an instant and with complete certainty that you have made an error. Hopefully, you’ll learn from it and reduce the chance of a recurrence.

But what if you were to make the same mistake repeatedly and not even be aware of it? These types of mistakes may not cause the same level of personal anguish at the time, but when uncovered months or even years later, their effect can be significant and highly damaging.

During a recent conversation with a compensation administrator at a telecommunications company, I was told of an error that had gone unnoticed for six months. This error had resulted in inaccurate payments to approximately 300 employees. Unsurprisingly perhaps, this error had resulted in overpayments rather than underpayments. In fact, the 2019 Forrester Total Economic Impact of IBM Incentive Compensation Management found that prior to investing in Incentive Compensation Management (ICM), organizations were typically overpaying by 2%; a very large number when applied to the total compensation payout of even a medium-sized organization.

Anyway, back to the story – the error was a simple one; a change in the structure of the accelerator value table had been changed, but this was not spotted at the time or in the six months that followed. It meant that a VLOOKUP formula (apologies for those non-Excel nerds amongst you) in a spreadsheet was returning the wrong value meaning that 300 people who received payments relating to this were effectively bumped up a level and received more than they should have when selling products from a certain group. In fact, the only group not to benefit from the mistake were the company’s top performers; obviously a tough pill to swallow for them.

To be fair, to those who received the overpayments, they really couldn’t have known. In a complex, high-transaction business such as telecommunications, it can be hard to keep track of your compensation and as in this case, where there are no timely and detailed reports to view, it’s even harder. The error was eventually spotted by chance as a new employee, getting to grips with the organization’s compensation processes. As you might expect the initial fallout of this revelation was messy and not very pleasant. However, the silver lining is that the organization had long been weighing up the value of investing in a suitable automated tool and this event was the one that finally nudged the needle in the right direction as this scenario and others like it could never have happened.

IBM Sales Performance Management improves sales performance and operations with better management of incentive compensation plan and smarter administration of sales territories and quotas, producing faster insights with advanced analytics and AI. The solution includes incentive compensation management, territory and quota management and sales analytics that allow sales organizations and the businesses to reach data-driven decisions, faster while remaining agile and adaptive to change.

The moral of the story: If you are thinking about investing in an automated tool, don’t wait too long!

IBM Incentive Compensation Management Lead (CEE, Nordics & Benelux)

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