• August 23, 2005
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

Homegrown Sales Compensation Systems Fail to Fly

Sales compensation management is an important tool for driving sales performance and behavior, but companies aren't taking advantage of the available products, according to a series of blind online surveys conducted by sales compensation system vendor Centive. Several of the respondents' pain points can be addressed by almost any compensation system, and some of these pain points are questions of perception. There is a lack of consistency in what customers desire from compensation management and what they're choosing to use, according to Bob Conlin, CMO of Centive and author of the report. While 91 percent of organizations polled believe that sales compensation systems should be used strategically to effect behavior and drive sales performance, most were unhappy with the results. Sixty-seven percent believe the systems had little effect on performance, and 56 percent said their existing systems did not allow for timely, accurate commission payments. The core reason for this dissatisfaction, according to Conlin, is that businesses are using homegrown compensation system, cobbled together from spreadsheets, databases, and other applications--84 percent of polled companies report they use a like method. "Companies pay incentives in order to encourage good behavior and performance," Conlin says. "They're the carrot you dangle in front of the mule. But we see a great disparity between the incentive carrot and the various systems' ability to dangle it." This leads to lack of visibility into real-time sales performance metrics; lengthy roll-out times for new plans; manual processes in which there could be automation; and lost focus as sales reps spend too much time complaining about and sorting out payment errors. This last point is a well-known problem in sales organizations, according to Conlin. "Somebody once coined the term shadow accounting to describe the situation: Every sales rep maintains their own private spread sheet to track commissions, separate from the processes the sales department uses, which in turn is separate from what accounting uses," Conlin says. "At the end of the month, nobody's data adds up." Additionally, one of the leading causes of sales personnel leaving a company is distrust and arguments over commissions. "Turnover rate in a sales department is usually around 10 to 20 percent, but you want that to be your lowest performers, not your best ones." Why, then, are organizations not using dedicated sales compensation management products? According to Conlin, it's because of a lack of awareness about compensation outside of certain large-business circles. "Until recently compensation management was something only found at the enterprise level, and it was too expensive for any organization without a very large sales component to implement if they even thought of doing so," he says. The rise of on-demand has changed that, but the news is still filtering down to SMBs. Related articles:
Is Your Compensation Plan Undermining Your CRM Initiative? Compensation Apps: Go for the Best
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