Incentive compensation regulations are changing the way companies of all sizes manage, monitor and report on their incentive compensation plans. 

The U.S. Securities and Exchange Commission (SEC) recently began requiring that public companies address their compensation and incentive compensation plans for all employees, not just executives.  All public companies, regardless of size, have to identify and report on their compensation programs that present potential risks to the business. 

Generally, most larger companies have automated, controlled and auditable incentive compensation management solutions, while most smaller companies still use spreadsheets to manage their incentive compensation programs. 

Regardless of company size, spreadsheets will no longer be adequate for managing incentive compensation plans. 

The underlying issue is risk.  How risky is it for a company to not know their compensation obligations?  While larger companies may be managing larger amounts of payment, smaller companies are likely to be managing larger percentages of their total revenue.  A particularly good quarter for one or two high performing sales people could create a significant issue for a smaller company.  What CFO wants that surprise at the end of a quarter, or the end of a year? 

Incentive compensation plans can be risky.  Both the company and the employee are making a bet - if the employee does X, they'll earn extra compensation.  It's a calculated bet designed to drive specific behaviors from employees.  But without the right automation, controls and processes, that bet can backfire on the company. 

The key to avoiding surprises is to have control, visibility and awareness of potential risks.  With the right approach to incentive compensation management, a CFO could know the best case and worst case scenarios for each quarter.  For example, he or should could know the answer to "What is my payout if all my employees earn their quarterly incentives?"  or, on a more strategic level, "How do I assess revenue and profit while factoring in compensation payouts?"

These answers not only mitigate corporate risk, but they also provide the path to more strategic incentive compensation plans.  Oh, and by the way, if you are publicly traded, you'll now be required to know those answers.

For more information on incentive compensation and regulation, sign up for a live Webinar taking place on April 28. 

Incentive compensation can sometimes be the "dirty little secret" of corporations.  Executive compensation is often "public information" - public companies must reveal the compensation packages of key executives.  Private companies are not required, but often there is a board of directors aware of, and monitoring the compensation packages of executives.

However, the sales force, earning incentive compensation packages, often lacks any transparency.  The "hard" numbers are known - a sales person's base pay - but the overall package, once incentives and bonuses are paid, can be a "hidden" number.  Perhaps the CFO is looking at the total pay of top sales earners; perhaps not. 

The lack of transparency in incentive compensation packages is more a result of out-dated processes than a deliberate action to hide the total numbers.  Out-dated processes for incentive compensation include managing earnings and payouts on multiple spreadsheets, lacking formal processes for disputes, an inability to document and track adjustments to compensation and even lacking a single source to track both base pay and incentive pay.

Companies that lack comprehensive Incentive Compensation Management systems and processes will soon find themselves up against regulations.

In December 2009, the Securities and Exchange Commission passed regulations regarding incentive compensation for institutions under their rule.  The regulations come out of the recent financial crisis; the goal is to create accurate risk management of incentive and variable compensation plans.  All institutions overseen by the Securities and Exchange Commission will need to adhere to these regulations.

What can organizations expect in these new regulations for incentive compensation?

• Stricter reporting requirements
• Limits on the total amounts paid
• Audit and traceability restrictions

Companies need to assess how they are currently tracking, monitoring and measuring incentive compensation and understand if those processes will provide the transparency and information required of the new regulations. 

The days of tracking incentive compensation on multiple spreadsheets are soon ending.

These institutions may be the first to change how they manage incentive compensation, but others will soon follow.  Will you be ready to make that change?

For more information on incentive compensation and regulation, sign up for an April 28 Webinar, at:  http://www.revelwood.com/news_and_events/events/spm_webinars/default.htm .

In a recent sales performance management Webinar with Ritu Thakur of Smart Tech Inc., I provided an overview of how to select a sales performance management vendor.  The first step in the process of selecting a vendor is to make the business case for sales performance management.

The benefits of sales performance management are myriad; but benefits alone don't make a business case.  Hard numbers and real problems are what build a business case.  Let's take a look at the do's and don't's for building a business case.

Do's

• Do...build comprehensive Key Performance Indicators (KPIs) across sales people and processes and existing technology.
• Do...include tangible benefits and expected hard costs.
• Do...know your current sales metrics (including quota, territory, product, etc.,) and future target sales metrics.
• Do...set short-term and long-term return-on-investment (ROI) measurements.
• Do...understand the implementation model options for sales performance management and how they will fit within your organization.

Don't's

• Don't...focus only on the technology solution.  The most effective sales performance management solutions use enabling technology to change processes and improve the performance of sales people. 
• Don't...ignore intangible benefits and soft costs. 
• Don't...forget to consider your organization's culture.  Understand that a general rule of thumb for change is that 1/3 of the people will be enthusiastic about change, 1/3 will not be enthusiastic but will go along with change, and 1/3 will resist change.
• Don't...forget to identify automation opportunities.  Think about your current sales performance management and incentive compensation management practices.  This is the opportunity to eliminate duplicate spreadsheets, implement workflow and alerts and streamline any number of manual processes. 

There are many approaches to building a business case for sales performance management.  Some organizations pull together cross-disciplinary teams, some organizations hire consultants, and some use a combination of internal and external resources.

Ultimately, whichever approach you use, it is vital you focus on why your organization needs sales performance management; what is currently not working in your sales measurement process and incentive compensation management process, and what is working? 

Selecting the right sales performance management vendor is as much about your people, your organization and your business goals as it is about identifying the best technology solution.

In late 2009, CSO Insights surveyed 1,051 companies about sales performance management and sales compensation.  More than half of the survey respondents were from companies with revenue ranging from $250M to $1Billion in revenue. 

The results of the survey, combined with analysis from CSO Insights' Jim Dickie and Barry Trailer, identify some key findings in the sales performance management and sales compensation markets. 

My take away from these results is that many firms are able to manage the basics of their sales compensation plans (timely payouts, etc.,) but that most have not made the jump to sales performance management.  The key indicator in this is that most firms are missing the correlations between sales behaviors, sales plans and corporate goals.

Here are some findings that point to the larger need for sales performance management:

• One in eight companies have no idea what impact their compensation plans have on the selling behaviors of their reps
• Sales compensation plans seem to be reinforcing behaviors, rather than driving behaviors
• A lack of transparency and real-time reporting limits the leverage of commission payments
• Companies have an inability to forecast the impact of compensation design
• Plan and market complexity make real-time adjustments difficult
• Larger corporate and strategic goals are not tied to individual day-to-day activities

This report also covers key trends in sales compensation, such as the percentages of companies having reps make quote and other benchmarks.

If you would like a copy of this report, please contact Revelwood at info@revelwood.com.  

Sales performance management, and its predecessor/related discipline of incentive compensation management, are initiatives that have been around for several years.  But now it appears sales performance management is poised to be adopted by large number of companies.

Why are companies turning to sales performance management?

• To respond to increased competition
•  A need for sales accountability
• A focus on more aggressive sales
• To improve sales margins
• To improve timeliness, accuracy and transparency of sales commissions
• To gain better insight into sales trends and patterns
•  To address reporting compliance issues

The adoption growth of sales performance management is reflected by the comments of many analyst firms and influencers.  For example:

• Gartner predicts "sales organizations will also make use of newer technology and solutions such as price optimization and sales performance management."
• Enterprise Irregulars' Nenshad Bardoliwalla (www.twitter.com/nenshad) states, "we will continue to witness significant investment in sales and marketing performance management..."
• Ventana Research believes "for the thousands of sales organizations still relying on silos of data, spreadsheets and e-mail to track and manage sales performance, the opportunity for improvement is significant."

Maybe it is time for you to investigate how sales performance management can improve your bottom line?