Re:Tooling -- Sales Compensation Management: Always Be Selling

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Even as the economy continues to trudge along, sales professionals are expected to not only help cross-sell and upsell existing clientele, but to bring in new accounts—and fast.

The problem, ironically, is that sales professionals are spending less of their work hours actually selling—only about 37 percent of their time on average, according to a presentation at CRM magazine’s CRM Evolution 2009 conference in New York by Kevin Bandy, global lead at consultancy Accenture. Bandy also attributed a loss of as much as 50 percent of sales productivity to a combination of five functions. One of the five? Incentive compensation management (ICM)—often called sales compensation management (SCM)—which automates how sales pros get paid even within complex selling models or partner channels. “Companies cannot track compensation plans to overcome organizational dysfunction…[and] the reps and customers know it,” Bandy said. “Sales reps spend an enormous amount of time ensuring they are compensated correctly.” (See “Pay Day,” October 2007, for more background on SCM.)

According to Gartner’s 2008 MarketScope for Sales ICM Software, the marketplace for ICM expanded by 20 percent in 2007, on the heels of a 15 percent expansion in 2006. This year’s report was not yet complete at press time, but Michael Dunne, its author and a research vice president at Gartner, had a preliminary forecast of 5 percent to 10 percent growth for 2008, meaning the overall revenue in this market is now more than $300 million (Gartner’s 2008 figure). (Check out “Payer Players,” below, for more information on the main vendors in this space.)

While the market continues to grow, Aberdeen Research reports that it is far from overpenetrated, with half the respondents in a recent survey reporting they still use spreadsheets and 23 percent citing a custom in-house solution for compensation.

And yet Dunne says that there is wider recognition now that paying anything more than 100 sales reps “is a level of complexity that’s a headache, and the spreadsheet-based plan becomes unworkable.” Money for new technology may be tight during the recession, he says, but “the benefits of ICM become quite high, by mitigating administrative [costs]…, and reduc[ing] error rates.” An automated solution, he says, can drop those rates by more than 90 percent across the board. 

And SCM continues to expand its parameters. “There is a greater emphasis on modeling as well as on analytics,” Dunne says. 

“The modeling piece is for those trying to have a more-flexible environment to look at components and implications of various scenarios. There is a big push to get more autonomy for the business analyst, user, or compensation administrator to work with these systems on their own.”

Another trend is the evolution of software-as-a-service (SaaS) SCM, with some offerings now able to support more-sophisticated capabilities such as complicated rules in terms of conditions, timing, amount of payouts, multidimensional rate tables, plans, and accounting for overlays. “The ability to handle all of this has grown,” Dunne says. “We used to recommend if you had 100 to 500 payees to look to SaaS, but that is increasing to 600 or higher now.”

Besides being able to take on complex duties that had been left traditionally to on-premises deployments, the SaaS pricing model may also seem appealing. Dunne says that the typical SaaS SCM solution runs approximately $50 per person, per month; on-premises offerings may cost $400 to $700 per person. “That’s where the sliding scale and negotiation [are] in question,” he points out. “The perpetual license can be priced on the payee, which can be significant because you could be supporting a direct sales force…or an indirect channel. There’s all sorts of wrangling on how to treat that.”

Two critical best practices with SCM, Dunne says, are determining which data sources you’ll be pulling from, and having a firm plan in place before the deployment. “Data archeology is big,” he explains. “If you’re a big firm, you’re pulling from multiple places—which can be ugly—while smaller firms most likely have everything on [Microsoft] Excel…. Know ahead of time how you’re going to want to compensate your employees—a lot of times it seems people do the implementation and build the plan at the same time.” 

SIDEBAR: Payer Players

SIDEBAR: The Pieces of SCM

Above all, be sure the software you choose enables you to align compensation processes with business objectives.

  • Reporting and Modeling
  • Plan Design and Execution
  • Performance Management
  • Incentive Compensation Management

Source: Aberdeen Group, January 2009

SIDEBAR: Top Pressures for SCM Investments

Need to increase sales productivity: 64%

Need to increase top-line revenue: 41%

Need for better, more-accurate sales forecasts: 33%

Source: Aberdeen Group, January 2009

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