How Two Newborns Caused Sales Comp Armageddon
February 28, 2017
Who would guess that one person giving birth could throw a company into chaos? That’s precisely what happened when pregnancy complications caused me to leave for maternity leave eight weeks earlier than planned. I was the Global Sales Compensation manager of a large manufacturing company. And, as so often is the case, this also meant that I was the sole subject matter expert on our sales compensation structure and crediting logic. I had a staff of half a dozen people who supported the monthly commission reconciliation for over 600 payees. The calculations and data transformation logic was automated to a great extent and the same team had been supporting the process for over two years. In theory, the business should have continued in steady state in my absence.
I thought I had more time to prepare my team, but life rarely goes according plan. I found myself in the hospital on bedrest earlier than planned, fully expecting my team to call me if they had any questions come up. I even kept my laptop at my bedside, but the questions never came in. I was relieved and perplexed. Ultimately, I congratulated myself for having done such a good job of training the team and settled in to my bedrest.
There were more over and under payments than the team could handle, a seemingly endless backlog of disputes, and an accrual variance that jumped from a tolerance of 3% to an astonishing 20%.
After three months at home with my newborn twins, I expected to find some relief from my domestic disorder in the routine of monthly commissions processing. However, I returned to a sales compensation war zone. There were more over and under payment than the team could handle, a seemingly endless backlog of disputes, and an accrual variance that jumped from a tolerance of 3% to an astonishing 20%. There was even a list of items that were simply left on hold until I returned because no one on the team felt equipped to address them. It took a full month to work through the payout disputes alone. However, the most devastating consequence was the loss of trust from our plan participants. They had resorted to shadow accounting, micro-managing my team and escalating to C-level executives. All of these efforts took their focus from selling. It took our team nearly half a year to rebuild that trust through timely communication, accurate reporting and a lot of apologies.
What the heck happened?
The core issue which led to this catastrophe was inadequate documentation. We had process lists and monthly controls, thinking this was sufficient. The truth of the matter was that I held too much “tribal knowledge” in my head. We needed a detailed, clearly written desktop procedure with work flows and emergency protocols. This lack of adequate documentation led to “automated chaos” The machines still worked, software still ran, but every undocumented exception and unwritten rule resulted in an incorrect payment. And with as many as 14 participants earning commissions on a single deal, those errors compounded quickly.
Every company knows that it’s best practice to have standard operating procedures and clear documentation. Unfortunately, it’s all too common for documentation to take a backseat to more immediate (read: revenue generating) business priorities. Failure to maintain documentation, is a dangerously inconspicuous risk. Assuredly, when the sales comp manager takes an unplanned leave of absence or quits, the ability of that business to carry on in a steady state will hinge upon the existence of quality, current documentation. In my current line of work as a sales comp consultant, most of my business is the direct result of undocumented processes. When the phone rings, it’s generally a VP calling in a desperate state, explaining that her sales comp expert has just given notice, nobody knows what he was doing and there doesn’t seem to be any documentation. The ask is always the same: “Can you get on a plane tomorrow and help us avoid a disaster?”
At a minimum, companies change compensation rules annually, but I often see changes on a semi-annual or even quarterly basis as well. If this is the case, companies must have a dedicated person for documentation. My recommendations for this role include:
- Gaining tribal knowledge through requirements calls. This person will lead requirement discussions for sales compensation plan design changes in order to gain understanding of the rules and track the changes to be documented.
- Documenting desktop procedures in real-time. This should include detailed documentation of sales compensation plan rules, adjustments, exceptions, approvals and controls. Desktop procedures should be reviewed regularly and updated as necessary. This person should also be responsible for training the sales comp team on how and where to access desktop procedures for their areas of responsibility.
- Debriefing the sales comp team after each commission payroll. This person should sit down with the sales comp team after each commission pay cycle to ask hard questions such as, “What went wrong with this payroll? Where did we over or under pay, and what controls can we put in place so we don’t make the same mistakes again?” If forecasted commissions and actuals don’t reconcile, take the time to audit and determine where the misalignments occurred in order to recalibrate forecasts for the next pay period. One major benefit of managing a process through the use of current, accurate documentation is that the process will evolve through the efficiencies that are gained.
- Preparing the sales comp team for auditors. Documented controls and training should not only reflect existing audit requirements but ultimately serve as the framework for future narratives. Once the process has evolved, the audit controls should reflect that. Often the burden of auditing proof lessens, as a business group is able to demonstrate consistent, accurate results.
The reality is that a lot of sales comp teams do not have the budget for a dedicated resource focused on real-time documentation. Those costs should be weighed in comparison with the potential liability your company will face when your sales compensation manager leaves or is suddenly sidelined. Ask yourself whether your team could deliver that next payroll, if your subject matter expert tendered her resignation today. I’ve seen one too many clients, with solid sales compensation systems, left reeling in the wake of a resignation because the documentation simply did not exist. Don’t fall into this easily avoidable situation.
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