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Solving Sales Compensation Management Problems
Improving the system without fundamentally changing people and processes is not enough.
Posted Nov 1, 2006
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One of the most challenging--yet most critical--processes that can drive sales performance is the management of sales compensation plans. If you think about a sales compensation plan as the embodiment of what salespeople need to be doing to help the company achieve its objectives, poor sales compensation management can lead to inefficient customer targeting, sales of the wrong products or services, and heavy discounting--all of which result in lower revenue and margins because sales behaviors are not aligned with company objectives. Many organizations experience lower than desired sales force effectiveness and productivity due to six common sales compensation management problems: strategic misalignment; limited modeling; misunderstood plans; inaccurate results; lack of information; and inability to adapt. Each of these problems associated with ineffective sales compensation management can generally be traced to three root causes:
  • inflexible systems
  • inefficient processes
  • lack of experienced people Most organizations--at least initially--think that the single root cause of their problems is an inflexible sales compensation management system, but the reality is this is not the case. That's because a flexible system is an enabler for success, but the root of most problems is almost always traced to inefficient processes and a lack of experienced people to effectively design and manage the plan. In most sales compensation management systems, the logic of the plan is hard-coded into the data extraction and integration routines, the crediting methodology, the earnings and payment calculations, and the report creation and distribution process, so even a minor change to any one of the parts of the system becomes a major programming project. Problems occur when hard-coded systems collide with a need to frequently tweak sales compensation plans to keep them up to date with company objectives. The resulting constraints mean that plans cannot be rapidly and frequently modified, and plans get out of alignment with strategy. It's nearly impossible to build the required flexibility into a homegrown system and the few off the shelf software products on the market require extensive custom coding, especially in the area of data extraction and integration, which limits flexibility. Worse yet is that as a hard-coded system is modified over time, it becomes complicated and the creators of the system have moved on to other roles long ago, which further hampers the ability to make needed changes.
    Most sales compensation management problems are related to having labor-intensive, manual, inefficient processes that cause errors, produce delays in payments and reporting, trigger excessive disputes and inquiries from the field, and result in unproductive rework by already constrained resources. Digging deeper, many process-related problems stem from poorly documented or manually operated processes related to data extraction, integration, and validation. These upstream processes cause many of the downstream problems. If problems can be discovered and corrected after each step in the process, rather than at process end, delays and errors are eliminated. To correct these problems, processes must be thoroughly evaluated and redesigned with automation, flexibility, and centralization in mind. They must also be documented. Only then can they be automated to improve efficiency, productivity, and consistency across the organization. There is no college course on how to manage sales compensation plans, and people who end up in that role often find themselves there unexpectedly, driven by organizational needs rather than career goals. Even if the expertise does exist within an organization, the people responsible for process management are often too involved fighting fires to apply their expertise to improving processes--and the IT department is too busy with other initiatives to redesign the systems needed to support those processes. As a result, most organizations lack an understanding of best practices associated with sales compensation management along with a consistent, reliable source of expert knowledge. Solving sales compensation management problems can only begin by addressing each of the three root causes behind them--inflexible systems, inefficient process, and lack of experienced people. But improving the system without changing people and processes is not enough. Having expert resources with the right skills, capabilities, and knowledge who are capable of assessing, redesigning, automating--and, most important, managing--the processes is the key to maximizing sales performance, productivity, and effectiveness. About the Author Mark Stiffler is founder, president, and CEO of Synygy. Please visit www.synygy.com
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