HOW INCENTIVE COMPENSATION REWARDS EACH EMPLOYEE IN YOUR COMPANY
CONTENTS 1. A Good Compensation Plan Shows Finance the Money (And How To Make More Of It) 2. Sales Managers Can Orchestrate the Sweetest Incentive Tunes 3. The Sales Rep Light Sidebar: A Powerful Incentive Plan 4. The C-Level Can Step It Up a Level 5. Incentive Compensation Plan: 1, Spreadsheet-based Plan: 0 6. 5 Things You Shouldn t Be Doing with Compensation Plans It s clear that using spreadsheets to manage incentive compensation is a no-go when it comes to company profitability and morale, but good news is ahead! Now that you ve diagnosed your spreadsheet sickness, you re in line for a cure. This paper presents a remedy for the ills of the spreadsheet: Incentive automation and the many advantages it provides. From easy implementation to fluid mechanics, we ll unveil a holistic map of how specific individuals in your enterprise can and will benefit. A GOOD COMPENSATION PLAN SHOWS FINANCE THE MONEY (AND HOW TO MAKE MORE OF IT) Visualize your finance employees plink-plink-plinking on keyboards in front of old spreadsheets. It s a sad picture, especially when you consider that errors associated with manual offline sales commission systems run between 3 8% of total incentive payouts, according to Gartner. But, fear not. A sound incentive compensation plan puts all your financial ducks in an orderly row, without a quack to be heard. You can use it to: Reduce Errors and Improve Efficiency Manually reviewing emails, documents, and spreadsheets harkens to the 80s. Today, there is a better, faster, more effective way for finance departments to manage plans. You ll make fewer mistakes using an automated system that works with built-in standards and checks. Also top-of-mind: producing accurate, quality reports and disclosures allays regulatory risk. Streamline Business Planning Here s a twofer: Automation allows you to close your books accurately while simultaneously gathering important forecasting information. You ll be able to see how your pay structure impacts profitability, and, with what-if modeling features, test and refine strategic plans that efficiently and effectively control compensation costs and ensure revenue. Manage Costs and Pave the Way to Profits Effective compensation plans systematize the allocation and distribution of incentive Page 2
dollars to where they get the most bang for the buck. Finance can easily monitor progress against goals. Confidence in the compensation system (and its returns) provides profit predictability. Get Your Finance Team and Sales Team Amicably Aligned When data is buried in murk, salespeople don t trust their payments. That can mean you waste hours on commission disputes, and those conversations don t create the best environment for collaborative department relationships. Automation makes everyone s lives easier: because sales folks trust their plans and payments, they bug you less and spend more time selling. And that s good for your time, your headaches, and your numbers. Your fiscal department relies on accuracy and deep visibility to do its job. Automation does this in real time. SALES MANAGERS CAN ORCHESTRATE THE SWEETEST INCENTIVE TUNES Sales managers need a long, rich view into sales performance across all employee levels. By losing the antiquated spreadsheet and choosing the right incentive compensation software, managers can learn exactly what their reps are doing right, doing wrong, and how to pinpoint and push incentives to spur positive motivation. The full toolset of a primed incentive compensation plan allows for easily implementing programs designed for specific performance levels, and for encouraging results. With such a plan, managers can: Gain an Accurate Performance Picture Why live with lagging indicators if you don t have to? Up-to-the minute data and easyto-generate reports pinpoint performance gaps and isolate superstar best practices to give managers clear footing on how to enhance others performance. When you understand your performance scale, you can easily identify and rank low, middle, and top performers. Quickly Create (and Revise at Will) Sales Coaching and Training Blueprints Flexible tools adjust for performance, challenge, and reward. Meanwhile, credible data allows managers to make solid personnel decisions, such as determining who needs to be hired and when, who needs to be let go, and who needs to be coached. If you need to onboard new employees or make position shifts, you can use the success Page 3
blueprints of top performers from the plan for targeted employee coaching. Customize Plans to Leverage Unique Rep Motivations While your hunters need to be compensated for new business, it would be silly to only pay farmer reps for that behavior. When you use an automated tool, it s easy to create compensation plans that address clear distinctions across your employee base, and institute and manage plans particular to those differentiations. Performance results from an American Productivity and Quality Center review of 148 organizations with revenue greater than $1 billion showed that bottom performers spent five times more time on the last mile of finance than the top performers. Automate to save essential time and money. Gain Timely Insight on Your Company s Performance Performance reporting is only useful if it s timely and accurate. Luckily, timely and accurate are the mainstays of automation, particularly when you can easily generate reports that show you how to support your organizational goals with competitive sales planning. Automated compensation plans are marvelously flexible in providing the capacity to fine-tune performance. Imagine what can happen when managers have the tools to inspire peak performance across your entire sales team. THE SALES REP LIGHT SABER: A POWERFUL INCENTIVE PLAN The clarity of an automated compensation plan lights up what used to be the dark cave of sales incentives. Sales reps like the straight-up basics of automation: They know what their incentives are, what they need to do to reach them, and when they need to do it. Good plans cut through murk and throw off motivational light. Your sales reps will thrive and strive using a program that: Is Easy To Use Your sales reps shouldn t need an IT degree to see where they stand in terms of performance and compensation, and they definitely shouldn t have to learn to use a new, perplexing interface or navigate baffling add-on tools. Just think of all the resources you ve wasted on training in the past. An automated compensation tool plugs right into your Customer Relationship Management (CRM) platform, where your reps live every day already. Reps can get the information they crave on any Web browser, at the office, at home, an airport, or even on the road. Saves Them From Shadow Accounting When you use spreadsheets, payments aren t just late; they re often inaccurate. Page 4
This can lead sales reps to track commissions on their own and when they re selftracking, they re not working on new business. An automated solution shows reps how they are being compensated, moment by moment, which will make them that much more likely to put in extra effort to close a deal. Amps Up Their Motivation There s a proven link between pay and performance. That s why it s so great that automation tells reps how their work is benefitting them personally, in real time. All they need to do is log in to get up-to-the-minute information about where they rank against quota. There can also see what s in it for them if certain deals close. All they need to do is push the Show Me the Money button! Spells Out SPIFs That Make Sense Special Performance Incentive Funds (SPIFs) provide many companies top salespeople with tangible, ongoing motivation but only if tracked in real time. Give your reps a smooth path to success through a sales compensation application that makes timely tracking easy. Sales reps have no appetite for endless tinkering and tweaking of software; they love clear goals and fully defined bonuses and incentives. An easily managed automation plan, unlike a spreadsheet, will never give reps the perception that they re chasing goals they ll never reach. THE C- LEVEL CAN STEP IT UP A LEVEL Could your company executives also use the kind of incentive plan that polishes the window of accurate, real-time analysis and insight? Absolutely. When you swap spreadsheets for effective automation, your executive management team can: Assess Your People Plan Do you have the right people in the right jobs? Are they producing at their maximum potential? With automation, you can zero in on performance gaps and share your top performers best practices. Then, you can align staff headcount and focus based on your future projections. Better Gauge the Success of Your Organization Automation allows you to clearly see how this year s results compare to last year s in real time, and whether you re meeting your goals by region, by product, by channel, Page 5
and more. When you have the ability to analyze activities and results, you can allocate your resources to where they ll provide the greatest return. Make Competitive Strategy Changes in Real Time There s a great deal of power in being able to nimbly steer the course of your business, and actionable data puts you in the driver s seat. Say your chief competitor introduces a new product. You can respond immediately by tweaking your incentive strategy to readjust your team s focus and put them on the offensive. Deep reporting functionality gives you the visibility into better decisions about everything from hiring and promotions to budgets and forecasts. Become a Predictive Organization Navigating risk is part of operating any business, particularly when it s growing fast. With automation, you can quickly run reports that provide insight on potential credit risks, project or service failures, competitive behavior, and shaky markets. You can also run revenue forecasts and model hypothetical incentive strategy changes. Then, you can make fact-based decisions and develop contingency plans. For the C-suite, everything boils down to the bottom line, so knowing how to amp up cost savings and competitive advantage is key. Who wouldn t want a maximum return on their compensation spend? INCENTIVE COMPENSATION PLAN: 1 SPREADSHEET- BASED PLAN: O To learn more about how to choose the right compensation application, check out: Your Killer 10- Point Guide to Choosing The Right Comp Vendor. For years, great business leaders have known that compensation is a prime motivator for company success. The right strategy can increase profits, control expenses, and drive consistent quarter-over-quarter results. That s why an effective incentive compensation strategy influences every level of your company, and drives aligned performance. It wasn t that long ago that most companies wouldn t look beyond the spreadsheet to manage incentive compensation, because technological solutions required large upfront software license and maintenance fees, costly hardware, unpredictable implementations, and complex upgrades. But new, on-demand applications have broken through; companies can now easily and affordably design, implement, manage, audit, and communicate incentive compensation programs. Page 6
5 Things You Shouldn t Be Doing with Compensation Plans It s impossible to unleash all of the benefits of effective incentive compensation in your company if you re doing any of these five things: 1. Using an Outdated Process Often, sales organizations will build plans based on outdated metrics or activities, such as ones that only benefit sales reps. You should focus instead on compensating for a stellar customer experience. After all, you can t sell to a customer who is being treated like he s just another quota. 2. Compensating on Lagging Metrics Your sales reps have just back from a trade show with 50 new leads. Hooray! Here s the thing: They might all come back cold. If you still reward that rep for those 50 leads, you re compensating against horrible metrics. It s a waste of time, and worse, you re encouraging this behavior. 3. Failing to Reward Key Contributors Who Impact Client Success Let s say you only compensate your hunter reps for deals that close. Right off the bat, this is a mistake, because hunters would be nowhere without your prospectors, who find those quality leads and keeps your pipeline full. Make sure you compensate everyone for the amount that they contribute to a deal. 4. Compensating Too Late to Effect Change Research tells us that the longer you wait to compensate your sales reps, the less likely they are to link the reward to its activating behavior. This decreases their motivation to perform again in the same way, or maybe even to show up in the office. 5. Offering Only Financial Incentives Here s the bottom line: Money s important, but it s not everything. Dan Pink once said, Just using financial incentives creates a focus that adversely impacts performance. Expand your vision (and your results) by focusing on rewarding peak performance with soft incentives. For example, you could offer someone the freedom to work outside of the office, or a paid membership to a professional club. Xactly s Incentive Compensation Solutions Xactly helps you take incentive compensation from a dark art to a science, providing you with insights to help you tap the motivational power of your incentive compensation and inspire employee performance. Page 7