Even the smallest mom-and-pop businesses use Quicken and other software tools to prepare their taxes and balance their books, but when it comes to sales compensation, many of the world’s largest corporations are still mired in the dark ages of Excel spreadsheets. It’s a hopelessly inadequate tool for the job, not only because it’s a nightmare for sales and financial professionals to manage but also because it can cause financial losses for the company. Fortunately, a new breed of software packages designed specifically for sales compensation management is giving organizations a new way to oversee this important corporate function.
For years, great business leaders have recognized that sales compensation is one of the prime motivators for a company’s success. The right plans can increase top- and bottom-line revenues, control expenses and drive consistent quarter-over-quarter results. Unfortunately, because of the high costs associated with automating sales compensation, only the world’s largest sales organizations have been able to realize the benefits of having a dedicated compensation management tool in place.
For the vast majority of companies, the cost of acquiring traditional enterprise applications is simply too high to be practical because of large up-front software license and maintenance fees, expensive hardware, unpredictable implementations and complex upgrades. As a result, most companies continue to limp along, stuck in the paradigm of complex, spreadsheet-based sales-compensation programs. These companies tend to either simplify—or unnecessarily complicate—sales compensation, resulting in lost motivation, lack of understanding and individual results that may not be in concert with corporate objectives.
The theory behind having a sales compensation management is sound, but how will it play in Peoria? After all, plenty of great ideas—Betamax comes to mind—fall by the wayside despite having been better than the alternative. Thankfully, forward-thinking companies are already using affordable sales-compensation systems to replace their inefficient spreadsheets. LoanCity, a wholesale mortgage lender based in San Jose, California, recently deployed a web-based sales-compensation system for its nationwide network of more than 200 mortgage sales professionals.
Nick Labao, the company’s executive vice president of finance, said that, “until we installed the system, our sales professionals had no visibility into their compensation plans and performance.” Now, Labao said, the company is able to use variable compensation to motivate its sales force to bring in more mortgage volume. “This same flexibility will also allow us to quickly introduce special performance incentives,” Labao said. “This is critical in an industry such as ours, where firms need to move quickly to adjust to changing rates and market conditions.”
Having a trackable system can also be a plus for companies looking for internal process control over incentive compensation to help minimize the risk of non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (SOX). Manual processes, such as spreadsheets, provide only a static point-in-time view into compensation and do not provide an archive or audit trail as changes are made to compensation as required by SOX.
So what’s wrong with spreadsheets? For starters, they aren’t scalable in any practical way. It’s one thing if you’re managing three or four employees, but imagine trying to sort a constantly changing flow of data for dozens or hundreds of individuals. Not only is it a pain in the neck, but also manually sorting such a large amount of information can lead to serious errors and omissions that have a negative effect on the bottom line. In addition, spreadsheets don’t allow real-time visibility into compensation, creating a situation in which there is no way for sales professionals to get accurate, up-to-the-minute information about where they stand.
Aside from the very real problem of data-entry and data-management errors (the bane of Excel-based “systems”), a holistic approach to sales compensation management makes life easier—and saves money and time. A unified compensation management solution allows companies to maximize sales of their most profitable products.
For example, incentive programs can compensate differently, based on variables such as product margin, product mix, discount percentages or event accounts receivable. A good sales compensation management solution also allows organizations to gain significant competitive advantage by adjusting sales compensation plans quickly to react to changing market conditions. It also allows sales managers and executives to modify plans easily and introduce Special Performance Incentive Funds (SPIFs) to outmaneuver the competition.
One of the biggest benefits of having a dedicated sales compensation management system in place can’t be measured on the balance sheet: It’s the trust and confidence that gets built by having an accurate compensation mechanism. Paying correctly and consistently fosters firm relationships between sales and finance departments, and a proper sales compensation management system allows members of a sales team to understand how they are being paid. They can now spend time selling versus tracking their compensation, knowing that they don’t need spend their time poring through spreadsheets to make sure they are being compensated fairly.