SALES INCENTIVE COMPENSATION FOR COMPANIES

SALES INCENTIVE COMPENSATION 101 FOR COMPANIES EMERGING

SALES INCENTIVE COMPENSATION BASICS Incentive compensation programs are an integral part of many companies culture and commission structure. In a recent study by WorldatWork, it was determined that 88 percent of organizations have a rewards and/or recognition program in place, and they are named as a key factor in employee recruitment and retention. Incentive compensation can be a very effective motivational tool for any business. With a system of bonuses based on performance in place, you can make sure that those who do well for the company are properly rewarded. This is even more important when it comes to sales incentive compensation. Giving salespeople a commission based on what and how much they sell is a motivational tool which encourages them to work harder and bring in as much revenue as they can. Some salespeople work entirely on commission, which makes a sales incentive compensation program even more essential. Just as essential as the program itself is making sure you have a way to implement it effectively. If your implementation is sloppy, or if you don t commit enough resources to the task, your salespeople might not get the compensation they deserve, and there may be errors or long delays in receiving payment. The quickest way to ruin the motivation behind an incentive is to delay payment. How do you implement an effective and efficient sales incentive compensation program in your company that both does what it s supposed to do and keeps everyone happy? Let s take a closer look. The first and most important aspect of incentive compensation is having a clearly defined plan for the compensation you re providing, so that everybody knows exactly what to expect. How much compensation are you planning on giving your salespeople? Is it based on the number of sales, or the value of each sale? Will the percentages go up with employee seniority, or will they be based on performance over time? If you already have an incentive compensation program implemented in your company, then you probably know the answers to these questions. Still, it s essential to have eveything documented so that everything is clear and accessible. Some companies choose to make their sales incentive compensation packages intentionally complicated and vague. For example, they may offer commission only on sales that are above a certain percentage of improvement over last year s sales. The thinking is that this will get their salespeople to work toward a goal without actually having to provide value for the thing they re working towards. This may seem like a quick and easy way to boost motivation and increase sales for a lower overall cost; however, in the end these tactics benefit no one. Sales can only improve if reps are given quantifiable and attainable goals. The more they re able to yield results for themselves, the more motivated they ll be to yield results for you. Once you have your sales incentive compensation plan clearly defined, you need to determine the payment schedule. Will compensation be given monthly or quarterly? What about SPIF s? What about gamification? Gartner found that by 2015, 40 percent of Global 1000 organizations will use gamification as the primary mechanism to transform business operations. Using gamification can help boost motivation and increase employee engagement. You may also choose to implement a long-term compensation plan. In this type of plan, typically a percentage of each salesperson s earnings are paid regularly and a percentage is held over for a period of time and placed in a seperate fund. The fund is then able to earn interest, and can make a good retirment package. Whatever payment system and schedule you decide on, it s important that you adhere to it religiously. You need to pay your salespeople what and when you ve promised them. This may seem like a given, but if you already have a sales incentive compensation plan in place, you know how hard it can be to keep on top of it, especially for small or medium sized businesses. There are so many little details to handle for each employee, and they can be easy to lose track of. Which is why, once you have your payment schedule firmly in place, the next thing your company needs is a sales incentive compensation management tool. There are two basic types of management tools that you can implement: a manual system or an automated tool. For the reasons outlined below, we strongly recommend an automated system. 88% of organizations have a rewards and/or recognition program in place and they are named as a key factor in employee recruitment and retention 1 SALES INCENTIVE COMPENSATION 101 FOR EMERGING COMPANIES SALES INCENTIVE COMPENSATION BASICS 2

WHY SALES INCENTIVES ARE USED There are many companies that do not use incentives of any kind for their salespeople. They pay their salespeople a salary, maybe a yearly bonus, and that s it. Chances are, that model is not working as well as it could. Why? Because human nature dictates that people like to be rewarded and recognized for their behaviors. In fact, a Globoforce survey found that 78 percent of workers said they would work harder if their efforts were better recognized and appreciated. People like to be compensated for their hard work, and they want that compensation directly tied to the specific actions they take to move your business forward. With the global trend of allowing employees to share in company profits, successful companies realize that sharing the wealth is absolutely critial to growth. In truth, most of them simply believe that it s the right thing to do. Treating salespeople like company owners can be a great move, and sales incentive compensation makes this possible. Empowered salespeople will be happier, feel more invested in the company, and produce more. So, how do smart emerging companies use incentive compensation to drive profitability? How do smart emerging companies use incentive compensation to drive profitability? BY SELLING HIGH VALUE, HIGH MARGIN PRODUCTS AND SERVICES BY CONNECTING SPECIFIC SALES BEHAVIORS WITH KEY METRICS AND KPI S BY SELLING PRODUCTS AND SERVICES THAT LEND THEMSELVES WELL TO UPSELLS AND REPEAT PURCHASES BY ATTRACTING AND EMPLOYING SALES PEOPLE THAT RESPOND TO ATTRACTIVE FINANCIAL (AND NON-FINANCIAL) INCENTIVES By focusing on these four factors, you can effectively use an incentive compensation program to fuel improved sales and positive morale among your sales team. 3 SALES INCENTIVE COMPENSATION 101 FOR EMERGING COMPANIES WHY SALES INCENTIVES ARE USED 4

88% of spreadsheets contain errors! MANUAL SALES INCENTIVE COMPENSATION The most basic way to manage your sales incentive compensation plan is by using spreadsheets on your computer. After all, the data in and of itself isn t that complicated; it s mainly just a bunch of figures. You enter in each sale for the month in one column, for the next month in the next column, and so forth. You can even program the spreadsheets to do basic math for you, so that it will figure out the commission for each employee automatically each month, based on the figures you input. However, problems arise when you consider the sheer volume of data coupled with the inevitability of humane error. In a small to medium size comany you may have anywhere from a couple of dozen to hundreds of salespeople on staff, and each one requires their own spreadsheet. Each of those spreedsheets needs to be kept careful track of, submitted to accounting evey month or quarter, and then submitted to payroll as well. Additionally, the potential for human error exists at every step of the process, and amid an avalanche of spreadsheets, those errors are unlikely to be spotted or corrected. In a recent study by MarketWatch, it was found that a shocking 88 percent of spreadsheets contain errors! There simply aren t enough resources to accurately manage an incentive compensation plan with spreadsheets. For a micro company with only a handful of employees, manual sales incentive compensation management might be feasible. But for an SMB, this way of doing things is behind the times, and will inevitably result in a catastrophic mess. No one is ever sure who owes what to whom, and looking it up takes forever, provided you re ever able to find the figures you need. Payments take ages to process, and can t be made with any kind of regularity. With this type of system in place salespeople never know when they re going to get their next incentive check until they re holding it in their hands. If you run an SMB you need to find a more practical option that inspires the sales behavior you want. 5 SALES INCENTIVE COMPENSATION 101 FOR EMERGING COMPANIES MANUAL SALES INCENTIVE COMPENSATION 6

AUTOMATED SALES INCENTIVE COMPENSATION An automated sales incentive compensation system is a SaaS (software as a service) platform that s designed to simplify the compensation process. It unites your sales data into one easy-touse interface that can keep track of all your records, employees, and incentives that have been or need to be paid. It can be accessed by any department in your company when and how they need it. This eliminates the need to send files around from one department to another. There are a plethora of benefits that a good automated sales incentive compensation platform can bring to your company, including: SAVING TIME When you have errors and discrepancies in your reports, or even the possibility of errors and discrepancies, it takes time to resolve them. Someone needs to pour over endless documents and search through piles of data in order to find the right figures and make the necessary corrections. This can waste countless hours of employee time - time that could be used much more productively elsewhere. Automated sales incentive compensation software greatly reduces the frequency of these errors, and when discrepancies do pop up, it makes it easy to find the proper data and correct things within minutes. This way, your company saves a tremendous amount of time and resources. EASY-TO-USE INTERFACE Rather than wasting time with tedious data entry, an automated system lets you streamline and take control of the process. All the data you want and all the tools you need to use it are together in one place, right at your fingertips. It can be implemented quickly and your entire company can be taught to use the new software with minimal training. This way, everyone is on the same page and you can see immediate improvement in your compensation practices. In addition, you can get updates instantly, rather than having to worry about keeping up with manually upgrading your software. CLOUD BASED FUNCTIONALITY In the past, software packages were installed individually on each computer in your office. Everyone used the same tools, but they used them separately. Sending information from one person or department to another had to be done manually. Not only was this a hassle, it made it difficult to integrate all of your data across the entire office, and ensure that everyone was on the same page. Nowadays, many SaaS platforms are based in the cloud, and your incentive compensation software should be no exception. Everyone can access the platform from wherever they are, and make updates to the database visible to the rest of the company in real time. This eliminates the needless back and forth of reports, and allows you to send your figures from sales to accounting to payroll in the blink of an eye. An automated sales incentive compensation system is a SaaS platform that is designed to simplify the compensation process. 7 SALES INCENTIVE COMPENSATION 101 FOR EMERGING COMPANIES AUTOMATED SALES INCENTIVE COMPENSATION 8

TRANSPARENCY Not only does cloud computing make things faster and more convenient, it also improves accountability. Every department has access to exactly the same figures and can check them from their point of view, virtually eliminating the possibility of overpaying or underpaying. In addition, management can keep an eye on the sales incentive compensation process to ensure that the entire operation is running smoothly. They can make adjustments to a particular compensation plan if necessary, so that it remains aligned with the company s overall objectives. SCALABILITY Your business may be small now, but over time you may grow, expand, and evolve this base. If you try to use the same compensation plan as your business develops and changes it will end up becoming a drain on your bottom line due to the sheer volume of salespeople and the increased administrative effort needed to handle them. Your compensation plan needs to grow and evolve with your company in order for your business to stay competitive. An automated platform should include architecture that allows you to scale your compensation plan to meet your current demands and expand your sales force as needed, without adding more administrative resources. FLEXIBILITY By the same token, your company may end up changing in some other way that requires you to change your overall business objectives; whether subtly or drastically. A good automated system will allow you to make changes to your current plan quickly and simply to make it fit with your new objectives. Those changes will be automatically reflected across the entire platform, and applied immediately to all employees, without requiring a major overhaul of the system s programming. INTERGRATION As a company that deals in sales it s likely that you already have some sort of Customer Relationship Management software platform, such as Salesforce, implemented in your company. As such, you may be thinking, great, does this new automation service mean our employees will need to balance two separate software platforms for all of their sales? Not at all. Your sales incentive compensation management software can integrate seamlessly into your CRM software; allowing you to run both from the same place. After all, they do use a lot of the same information. Now they can both be integrated instead of having to switch back and forth. REDUCTION OF ERRORS This integration with CRM can in turn help you to reduce human error in your compensation plan, and make sure that everyone gets the incentives they earned. Rather than having each salesperson enter the figures from every sale manually into a spreadsheet, you can simply import all the necessary figures from Salesforce into your incentive compensation platform. When you do this, the program has a record of all the sales made by your company, which it can then automatically categorize by salesperson, in order to get a quick and accurate figure of what their compensation should be for this month or quarter. E-DOCUMENT HANDLING Even with all of your data united under one easy-to-use platform, there s still a tremendous amount of documentation involved in sales incentive compensation. Each sale has at least one document attached to it, along with a plethora of other important papers. It s important to have these documents on hand and be able to access them when needed, in order to confirm a particular salesperson s compensation, resolve disputes, correct errors, and more. Sure, you could fill the basement of your office complex with file cabinets and spend hours searching for the right document when needed. You could store them on CDs or flash drives and have almost as difficult a time sorting through them as you would with physical papers. Or, you could use an incentive compensation software package that includes document handling. It puts all your important documents in one place, stored in the cloud, and allows you to sort them by salesperson. That way you have all the documents associated with a particular employee at your fingertips when you need them. ANALYTICS So you ve got your sales incentive compensation plan in place, and thanks to your automated software it s become a well-oiled machine. But what effect is the plan having on your company? Are you overpaying your workers? Under-paying? When Xactly evaluated existing sales comp data, we found as many as 160 commissions on one deal. This is excessive, and if the company is still calculating with Excel, it s unlikely they know the true compensation cost. An automated software program can help you implement your incentive plan, and make sure the right people are getting paid on each deal. But it can t ensure that it actually works, can it? Not exactly; but it can help you find out. An analytics application lets you view all of your sales and compensation data at a glance to see what s working, what s not, and what needs to be changed. It helps you to keep your plan up to date and enables you to do what s best for your employees and for your company. INCREASED MOTIVATION The entire point of sales incentive compensation is to motivate your salespeople to work harder and do more. But when filling out and submitting your reports is a hassle fraught with errors and problems it can end up being more of a worry than a motivator. If your salespeople are never even sure when their compensation checks are going to come in, it weakens the association in their minds between the work and the reward. However, thanks to the benefits listed above, an automated sales incentive compensation platform eliminates the hassle and allows you to pay out incentives like clockwork without error or worry. This will help put things into perspective for your salespeople, and allow them to see the benefits of their labors, inspiring them to work harder and sell more. Xactly evaluated existing sales comp data we found as 160 many as 160 commissions on one deal. This is excessive. COMMISSIONS 9 SALES INCENTIVE COMPENSATION 101 FOR EMERGING COMPANIES AUTOMATED SALES INCENTIVE COMPENSATION 10

CONCLUSION Sales incentive compensation is an essential part of any company that relies on selling products or services. Your salespeople are key contributors to the future growth of your company; the happier they are, the better they ll sell, and the more your company will be able to prosper. A manual incentive compensation plan often ends up doing more harm than good. It s a detriment to morale and it can make your company lose revenue due to human errors and excessive management times. If you implement a high quality, cloud based, automated sales incentive compensation platform at your company, you can turn things around. It will not only save you time and resources, it will also improve your sales, your profits, and your operations. The right incentives will help your company meet its overall goals and align employees with these objectives. WANT TO KNOW MORE? Additional Resources on the Xactly website: GUIDES: www.xactlycorp.com/resources/ guides/ WEBINARS: www.xactlycorp.com/resources/ webinars/ BLOG: www.xactlycorp.com/blog/ XactlyCorp @XactlyCorp lnkd.in/xactly Xactly XactlyCorp For More Information Visit www.xactlycorp.com or call 1.866.GO.XACTLY (469.2285) to learn how Xactly lets you pay sales commissions on time and error free, motivating your sales team to do more. Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 2005-2013 Xactly Corporation. All rights reserved. Xactly, Xactly Analytics, Xactly Connect, Xactly Data Management, Xactly Incent, Xactly Incentive Estimator, Xactly Incent Express, Xactly Modeling, Xactly Document Management, Xactly Territories, and Incent right. Sell more. are trademarks or registered trademarks of Xactly Corporation. All other trademarks are the property of their respective owners.