Incentive compensation
We all know that sales teams across the globe are driven by Sales Incentives. At the same time, we often fail to realize the importance of Incentive Compensation in the growth of an organization. Looking at the broader picture, sales incentives drive the behaviour and motivation of the salesforce, which influences the actual sales of a product and finally, it’s the sales or revenue that decides the bottom line of the organization. In a nutshell, incentive compensation is an important factor in the growth of an organization. At the same time setting up a fair Incentive Compensation Plan is not an easy task. It’s a delicate balance between paying enough to keep the sales force motivated and making sure that you are getting enough returns for your investment. All in all, Incentive Compensation is a tightrope that all product companies need to walk for their success.
Now that the importance of Incentive Compensation is known, it also becomes essential to understand all aspects that need to be considered as part of the Incentive Compensation Plan.
Brief on each service:
1. IC Plan design
Designing an IC plan is the 1st step towards incentive compensation management. The 3 important factors that form the pillar of IC plan design are company strategy, market dynamics and product lifecycle. The IC plans need to provide a clear direction to the sales force and ensure that the right behaviour is rewarded. In essence, the IC plan needs to be aligned with the strategic goals of the organization at the top level and at the same time, it needs to keep the sales force happy and motivated at the ground level. Lastly, we need to make sure that the plan is easy to understand and execute. Complex plans will only lead to confusion and miscommunication which is never good for the morale of the sales team.
2. Quota Setting
Quota setting or defining goals for your salesforce is one of the toughest parts of the Incentive Compensation Plan. It is tough because metrics like potential, regional dynamics, marketing activities, and capture ratios come into the picture, i.e., metrics that are not easily measurable and difficult to translate into numbers. Quotas or goals need to be such that it’s not easy for the salesforce to achieve, but at the same time, they should not be unachievable, i.e., setting realistic goals would be the first step towards a successful IC plan. If the goals are very high, it becomes impossible for the salesforce to achieve and resulting in a low payment and even lower morale/motivation. If the goals are set very low, then the entire salesforce overachieves, resulting in a happy but overpaid sales force that is heavy on the company’s pockets. At the end of the day, it is a balancing act between the devil and the deep sea. There are many types of sales quotas to choose from. Ensuring that you pick the one that works best for your team and your organization is very important.
3. MBO Management
Management by objectives is often a way to ensure that your salesforce is cognizant of and working towards a common business goal of the organization. It is also a way for the organization to involve the salesforce in their compensation process through discussions and debates while defining objectives. In a nutshell, “Objectives” are well-defined subjective business goals understood by the employees and management team alike. Since MBO is the result of a 2-way process it encourages employees to participate with more enthusiasm and really commit to their work.
4. Incentive Calculations
IC calculation or processing is often considered the easiest part of Sales Incentives. Before we go into the discussion of easy or not, we need to realize that this is the heart of the incentive process. This is the place where all the data is collated, metrics calculated, and payout aggregated for the entire sales force. This is also where audit trail, data security, sanctity, and long-term data storage come into play.
Incentive calculation can either be easy or hard, but what we do know for sure is that it’s an intensive process requiring a lot of manual intervention and that, in most cases, makes it prone to errors. Inaccurate results create distrust in the salesforce. This distrust translates into shadow accounting and makes them lose their focus on selling. A well-defined incentive program can easily fall apart if the incentive calculation process, whether manual or automated, is not done right. At the end of the day, breaking the entire incentive calculation process down into simpler steps and automating these steps is what can help you achieve your results more efficiently and effectively in the long run.
5. Reporting
Reporting or data visualization is often the key to a happy and satisfied salesforce as well as management and leadership. This is what brings 360-degree visibility to everyone involved in the sales incentive process. For the sales force, reporting not only gives them visibility into their compensation process but also provides them with the motivation to go to the next level, as everything they need is given to them in black and white. Reporting allows managers to monitor the performance of their team and helps them with insights for future reference. At a strategic level, data comparison & visualization or BI dashboards provide the leaders with the tools they need to make strategic decisions and drive their business. Sales reporting thus becomes of utmost importance and cannot be neglected at any level.
6. IC Health Check
As the Greek philosopher, Heraclitus, said: “Change is the only constant.”. Changes in market dynamics, company structure, and even selling techniques might render the incentive compensation program inefficient and ineffective. A periodic Health Check of your IC plans gives you the much-needed valediction that you are still on the right track or early indicators that your plans are derailing. All best-in-class companies evaluate the health of their compensation programs periodically to ensure that it is still aligned with the organizational goals and keep the sales force motivated.
Advantages of Automating these Processes
Automation is the requirement of the day. It also provides greater accuracy and takes you away from the prone to error manual system of the bygone era. Automation means efficiency and brings data security, data sanctity and audit trail to your door. Things like comparison across years, modelling, what if scenarios and analytics can become a one click process. All elements of the IC program like quota setting, incentive calculations, reports, and data storage, are brought together on a platform with easy access for everyone. From where we stand today, spending resources on automation will be a long-term investment that will pay high dividends in the long run. The few factors that you need to keep in mind while shopping for a tool are minimum complexity, business-friendly with multiple inbuilt business functional flows and, finally, efficient, accurate results.
Conclusion
When talking about the sales team, sales incentives will cross your mind. It is because they are an integral part of the sales world. Understanding how it impacts the sales world and then spending resources to make the whole process much easier would help reduce the workload while getting efficient results.
