IBM Sales Performance Management: Eliminating shadow accounting by establishing trust
December 06, 2018
Originally published on the IBM Blog
To be a sales compensation manager (SCM) is a position that many would not envy. You are tasked with administering and executing a structured, and often complex, commission plan to sales agents. It is not going out on a limb saying the number one concern of every salesman and saleswoman is their take home pay. By nature, a commissioned agent’s paycheck is going to vary from pay period to pay period, and often, complex and structured compensation plans, lead to a wide range of amounts per pay period. Simultaneously, sales agents often will keep a set of records and calculations to give them what they think is the proper amount of each paycheck, varying in complexity. This is commonly known as shadow accounting. Long, elaborate formulas that organizations have spent a great deal time developing, are mimicked by their employees, to ensure their paychecks are not a decimal place short. For many organizations that implement a manual commission payout process via a sales compensation individual or department, mistakes are going to happen. Typically, these are non-malicious, human error issues that often involves data entry or spreadsheet calculation mistakes which ends up affecting the bottom line and most important number a sales agent has to worry about, their net pay. The manual processing of the principle figure to a sales agent that leads to payroll error is ripe for change and digital transformation.
There is no mistake for human error
These problems arise when the figure that a sales rep has in their mind and the number on the paycheck do not match. Many organizations, regardless of size, are still using tried but not necessarily true spreadsheets as their main platform for doing these calculations. While spreadsheets may never be entirely eliminated from business, for good measure in some cases, they give a tremendous probability to human error. When this does happen and at minimum, an inquiry is started and a simple and honest mistake is identified and the compensation is corrected. On the other end of a scale, and when mistakes continue to happen, trust starts to erode between employee and employer, morale spirals downward and the cycle gets progressively worse, centering around the unenviable SCM. Compound this problem at large organizations that may have sales agent numbers in the thousands and payrolls in the billions, and inaccurate SPM implementation gets to be very expensive. Recent research from Gartner finds that both over and underpayments can range in 3-5% for organizations without the proper SPM environment. Compound this problem with the SCM spending their days putting out fires and dealing with complaint inquires. Time spent there instead of business development, fine tuning and developing existing and new compensation plans, and generally costing the business valuable time and money spent on addressing problems instead of improvements.
Spreadsheets: Not the wave of the future
Generally, these errors found in compensation to sales agents that can be so self-destructive to a business are not malicious but the result of human error and the use of spreadsheets to calculate an agent’s take home pay. Besides the possibility of mistakes, using a spreadsheet will most likely not provide the visibility an agent wants to see to either validate their suspicion or put their mind at ease. Beyond spreadsheets and formulas, a solution is needed that can streamline and reduce errors of the entire payment and compensation process. Showing an employee a soup to nuts calculation of your paycheck, or as they say, “receipts,” every pay period will establish confidence with each employee that are being paid correctly. For the SCM, they are not spending their time in a downward spiral of disgruntled employees, complaints and audit trails, but can focus on forward-thinking projects to improve their businesses. Also must be kept in mind is that incorrect payments don’t always work out in the organization’s favor. Overpayments happen almost as often, and millions are lost annual by businesses who are paying their employees mistakenly too much.
Transparency and trust is established with IBM
With the IBM Incentive Compensation Management solution, we provide transparency to the commissioned sales agent compensation process to end shadow accounting. From the CFO, to the SCM, to each individual sales agent, trust is established among all parties throughout the compensation process. A streamlined, agile and transparent compensation system is implemented that includes calculations that are rendered down to each individual transaction level, and every decimal place is accounted for, explained, and validated.
We invite you to learn more about IBM Incentive Compensation Management to see how it can benefit you and your business here.
Kevin Gray, Senior Product Portfolio Manager, Sales Performance Management