Incentive compensation drivers and best practices

Transcription

1 Incentive compensation drivers and best practices Vaibhav Chauhan, Abhishek Sharma Saurabh Satpute

2 Table of contents 1. INTRODUCTION DRIVERS FOR SALES INCENTIVE MANAGEMENT SALES COMPENSATION AND THE CORNER OFFICE MULTIPLE DECISION MAKERSDEFINE SALES COMPENSATION PLANS INCENTIVE COMPENSATION BEST PRACTICES THE BOTTOM-LINE WHERE IS THE ROI? REAPING THE BENEFITS...04

3 INTRODUCTION Sales Incentive Compensation is one of the Primary levers available to Organizations to influence Sales Behavior and drive results. Sales Performance Management is therefore an imperative which cannot be ignored in the context of present day economics. In addition to detailing best practices and key metrics relating to this process, this article also details how technology platforms can help companies painlessly imbibe such practices. In particular, we will also look at how the Oracle Incentive Compensation application from the Oracle E-Business Suite can help companies effectively implement a productive Sales Incentive Compensation Calculation and Administration framework Drivers for Sales Incentive Management Most Sales Organizations in the modern economy look at Sales Incentive Management as a tool to influence Sales Behavior. But what are the key drivers here? Pay for Performance Reward the right people! Differentiated pay for performance is at the heart of nurturing a successful Sales Organization Go to MarketAcceleration Ability to define the correct Incentive Programs that help companies go-to-market with newer products and services faster and more effectively Managing Volatility Balancing the right Sales Behavior in a Volatile Economy. Decisions on incentivizing the Quality and Quantity of sale Compensation Decision Areas need to be made. For example, Sales Commission for a discount sale needs to be different from one for a regular Sale Compliance & Control In a Globalized economy it is absolutely critical to have an organized and centrally managed policy administration for Compensation Plans and Incentive Schemes Sales incentives Automation - Drivers Pay for Performance Volatile selling Environment Go to Market, Channel Management Compliance & Control Accelerators, Guarantees Biz Rules Automation Compensation Modelling SOX, Audit & Approve Compensation Parameters Figure 1: Sales Incentive Compensation - Drivers Any Sales Incentive Compensation system must be able to clearly establish how it delivers against each of these drivers. The Oracle Incentive Compensation Module is an excellent example of how an enabling IT platform can help manage these key drivers: 02

4 The Oracle Incentive compensation module offers flexibility to an organization to define modular compensation components and helps roll out compensation plans faster to the field. SPIFF and Bonuses can be launched rapidly to support short term incentives to the sales force without having to worry about changes to the IT system The powerful OIC engine allows business to define complex accelerators that can reward high performers in a differentiated manner OIC also leverages the in- built analytics capability to help executives measure effectiveness of compensation plans; the tool also highlights top performers and laggards. The Oracle Incentive compensation modules comes with an out of box approval mechanism and fine grained access control features that help manage and automate administration of compensation plan and payments in a shared services environment Sales Compensation and the corner office Multiple Decision Makersdefine Sales Compensation Plans Although commissions and incentives are purely in the Sales domain, personnel from different groups need to contribute to create and define an Incentive Scheme or a Compensation Plan. Functions such as Sales and Finance play a key role in deciding the shape and structure of a Compensation Plan while the Human resources and Operations team are also major influencers. These multi-function teams would undoubtedly consider factors such as Sales Revenues, Compensation Spend Budgets, Market Conditions and Product Positioning while defining a Compensation Plan for an employee. Using Oracle s predefined roles and access and functionalities for compensation modelling and analytics, compensation strategy teams, Operations, Finance and IT divisions can work seamlessly in an integrated environment to implement sales strategy in compensation plans for the organization. Sales Incentives and Compensation is a diverse topic and impacts different End User people in the Organization in different ways. As can be expected, the CEO s viewpoint is dictated by the overall business vision of the company. After all, he or she has the onerous task of keeping the flock together Human Resources Influencer Sales Reps Finance Decision Maker while balancing the different goals of the company. Therefore, while attracting and retaining employees is one task, the same is balanced by the need to drive results forward by setting appropriate growth goals. To meet this dual need, it is essential for a good Incentive Compensation Automation system to have the capability to create a variety of Compensation Plans or Programs for different categories of personnel. For example, while the application must support creation of fair and equitable Sales Targets for everyone, it must also have the flexibility for user-definition of Discretionary Bonus Programs and SPIFFs thatcan be used to incentivize teams taking new products to market. Performance Drivers : Sales Personnel who create value for the organisation Challenge : Attract, engage, retain Performance enablers : Sales Personnel who support value creation Create suitable sales target Figure2: Incentive Compensation A CEO s view Innovators : Employees who discover new avenues for sales, products Discretionary BONUS, SPIFF Decision Maker Sales Mgmt Sales Operations Figure3: Incentive Compensation Plan Definition Decision Makers Influencer Incentive Compensation Best Practices A good Incentive Compensation Automation system brings along with it industry standard best practices, spanning dispute settlement to communication. Let s look at these in detail. 03

5 Disputes Plan Communication Plan Design Proacively manage disputes & foster trust with stakeholder Enable fast & proactive responses to ever-changing market conditions Provides sales & finance real-time Web-based visibility Motivates sales through real-time incentive estimations & sales performance analytics Resolves issues quickly with a single point of reference for compensation & sales performance Automate the process of creating, routing & approving & approving compensation plans. Review & approve incentive payments before releasing to payroll Provides sales management visibility into individual, group & company performance Archive & Purge : Create new sets of Comp plans periodically Rate Tiers : Keep no of rate tiers to a small number. Use End date Features : End date plans, Elements & rate tables to promote reuse Change dates at a resource level compared to plan level : Fewer insert triggers The Bottom-line Where is the RoI? Reaping the Benefits Incentive Compensation Automation is increasingly an imperative for Companies as they try to get close to top line growth targets in today s economy. But such an Incentive Compensation Automation system needs to be as efficient as the sales persons it aims to incentivize. In other words, such a system must deliver a clear, tangible return on investment. Consider the following scorecard case study of a company that implemented Oracle Incentive Compensation. The $ 1 million investment in the system was paid back in hard cash savings within a year combined with business and strategic benefits for the company. Scorecard : How a US $ 2billion companyreceived payback on its Oracle investment within the year Total annual sales commisions : $21M Sales Incentives payees : 700 1st year cost(licence, Impltn, Maint) : $ 950k ROI - Payback in 12 months Reduce commision overpayment by 3% ; $630K Reduce admin cost by $ 300/payee : $210K Plus Improved sales productivity Improved strategic alignment As seen in the case study above, Sales Incentives Automation can deliver a range of benefits that can positively impact the Organization from CEO to the Analyst, there are benefits to be reaped at all levels. These benefits range from Productivity improvements, Reduced Cost of Compensation Administration to easier Adherence to Compliance and Control policies to name just a few. These benefits are mapped to different business functions in the adjoining graphic. Role Benefit Net Results CEO Organisational Alignment Increased Profitability CFO Complete Comprehension Controlled Costs VP Sales/Sales Manager Clear Assessment Managed Control Account Executives Clear communication Greater Productivity Compensation Administrator Simplified Management Lowered Costs Compensation Analyst Comprehensive Analysis Better Planning IT Streamlined Control Effective Personnel Utilization Figure5: Potential Benefits of Incentive Compensation Automation In conclusion, it is clear that Incentive Compensation Automation systems are vital for organisations, due to the catalytic effect they could have on overall business productivity and performance within a company. By making creation and management of incentive programmes transparent and goal oriented, these systems have the potential to transform the culture of a company and help it realize its true potential. Clearly, one IT investment where the math adds up! 04

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