Mo' Adjustments, Mo' Problems - and Mo' Sales Comp Admins Won't Solve Them
November 22, 2016
How likely is your sales incentive plan going to be dead on arrival, riddled with holes caused by requests for changes and exceptions? At least three months prior to the new year, finance teams slave over intricate details and policies for sales incentive plans to make for a smoother payroll cycle next year. However, within weeks of implementation, compensation administrators are often buried under an avalanche of requests for changes or exceptions to the established plan.
As a sales compensation consultant, I frequently see many well-thought out and designed commission structures brought low by hundreds of manual adjustment requests. No matter how fancy the design or how much money was spent on a commission system implementation, it’s useless if you are scrambling to hire more compensation administrators to handle manual processes.
It is unavoidable to have at least a few changes to any plan, but how many adjustments are too many? Best-in-class companies aim for fewer than 5% of the sales team receiving adjustments each pay period. Recently, I had some back-and-forth with a current client that was seeing 300+ adjustments per month for a team of 800 when really, fewer than forty should receive an adjustment to their pay each month. Like many in this position, my client considered throwing more comp admins at the problem rather than getting to the root of the problem by evaluating their incentive compensation processes. If that ratio sounds like an impossible dream for your organization, consider the following fundamentals for creating an exceptions policy to get manual adjustments under control:
Gain an Executive Sponsor for the Effort
Imagine this: you’re 14 years old and stumbled upon the opportunity to buy tickets to see your favorite band… on a school night. Without parental buy-in, it’s either not going to happen or could end in major disaster. The same goes for exception policies. Any redesign attempt without buy-in from a decision maker who can enforce the change is futile. In most organizations, this could mean getting the Head of Sales or VP of Finance on board. A compelling argument for reining in adjustments is simply the cost savings from not having to hire additional staff to assist in commission processing. Fewer adjustments also means that the sales management and sales team will spend less time worrying whether commissions are accurate. The worst thing a compensation plan could do is distract the team from actually getting out and selling. A policy is only as good as the ability to enforce it, so buy-in from an executive team member is crucial.
Solidify (or create) your exceptions policy
Sales cycles are constantly in flux, so it is important to make sure that sales compensation processes are flexible enough to adjust as business priorities change. However, if there isn’t a well-defined change management and adjustment approval process, commission payments can get out of hand quickly. A well-defined exceptions policy should at minimum answer the following questions:
- Who can approve adjustment requests? (Hint: It shouldn’t be the compensation administrator)
- What is the standard format for submitting adjustment requests?
- What is the max amount of adjustments a manager can submit in a period before the executive team is notified?
- When is the cut off date for current period adjustments?
- What is the change control process for plan updates?
Evaluate your data feeds
A common term in computer science is: “Garbage in, garbage out.” This means your results are only as good as your data. For some companies, the majority of their adjustments are caused by faulty information coming through. This could include the wrong product being paid out, the incorrect salesperson being given credit for the sales booking, or even an extra “0” in a quota or commission target.
If the majority of your adjustments being made are corrections, a redesign of your data feeds is due. The key here is to limit human error as much as possible. If you are using spreadsheets and manual calculations to generate commissions, consider a Sales Performance Management (SPM) tool to help automate. Many tools today will integrate directly with your CRM product of choice. If managers are directly sending you won opportunities, consider setting up a standard form or template to submit this data. Many companies have had success utilizing simple web forms for submitting wins.
Streamline your Compensation Plans
Finally, there are often historical aspects to any compensation plan that result in team members with similar roles receiving vastly different pay structures. For example, if your company has recently undergone an acquisition or merger, you see similar business groups acting as separate entities, rather than cohesively. It would be undeniably helpful to have a strategy project to redefine your sales team roles and align goals with their current job descriptions, rather than those of the previous company. It is also a best practice to limit the number of measurements on a plan to three or less and keep calculations simple, transparent, and easily measurable.
Considering these factors, it is understandably a difficult task to change how your business operates. However, I would argue that not taking action comes with its own cost. Manual adjustments are just that - manual - and could lead to money unnecessarily lost due to errors. High adjustment rates also often lead to burnout on the compensation team, resulting in high (read: costly) turnover. This process doesn’t necessarily have to be an all-or-nothing effort; start small by calculating how many adjustments you are currently seeing on a monthly basis and aim to make changes that will reduce these.
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