Data governance is about the how, who, why, when, where, what of DATA. It is about assigning control over data assets. It is about the use of those data assets. It is a practice of making strategies for managing, allocating, and organizing data and hence giving you clear insights to make better decisions for your company. Additionally, proper data governance reduces data management costs and lightens the IT team’s overheads. From an enterprise organization’s perspective, it’s imperative to have appropriately defined the 5Ws and 1H.

As an example; If you are in sales incentives or sales operations, data governance should focus on the following main areas:

• Data availability & timeliness
• Usability & consistency
• Data transparency
• Data quality
• Data integrity (It means maintenance and assurance of data accuracy, consistency and completeness. It also ensures data validity and reliability)
• Data security ( It means protecting data from digital attacks. It also protects data from unauthorized actions such as cyberattacks)

Data Policies

Data management refers to data standards, processes, guidelines, and principles. These all tell us about how to put in place data decisions. Data management is the execution and implementation part. It is the technical implementation of data governance. They help in making decisions about data. You need data standards and rules to make a proper data policy. When you prepare appropriate policies for your data, it helps you to take control of it. All the data is clear and visible. These policies will tell you how to use data and in which manner. Policies help you with the proper implementation of data details. A data policy should be maintained close to the source and should be accessible. With proper implementation, you can access your data without any hassle. It ensures that data is reliable and timely available.

Improper or lack of data governance & management leads to data delays & inaccuracies that lead to missing deadlines and eventually dissatisfied & burnt out data operations team.

Conclusion

Although both of them are necessary for our business, they work alongside and together. The goals of both of these are almost similar. They both create a solid data foundation and give clarity about the data. They both maintain and protect data and are like two wheels of the cycle. Without a proper implementation policy, you can’t govern your data. And without data governance, you can’t put in place anything. That’s why you need to give attention to data management as well as to data governance and can’t depend on any one out of them.

When you buy Sales Compensation software, you make an investment for your enterprise. An incentive automation tool enhances success not only by speeding up the operations and reducing effort, but also by improving the operational mindset and quality of overall incentive program management in the organization. After all, ROI of your investment has to be looked at in that context. Unfortunately, these additional advantages are often overlooked.

A good system implementation framework provides constant reminders of where the loopholes obstruct the productivity of your team and other parties associated with the operations. Mentioned below are some more inclusive benefits of your incentive calculation process automation:

1. Development of As-Is Process Map:

You certainly cannot paint the walls of a house before building them. Good approach focuses on mapping out existing process flows and defining dependencies during requirements gathering. Most of the time operations teams are juggling several tasks and responsibilities at the same time that doesn’t allow them to look at a bigger picture. The experienced incentive team with automation focus does that with far more ease and ensures alignment of the execution of tasks in a particular order. Consequently, possible disruptions during downstream steps are avoided to a great extent.

2. Identification of Bottlenecks and Process Gaps:

Proactively analyze processing hurdles and manual touchpoints to understand root cause for quality issues and delays. You should dig deeper into reasons for inefficiencies and revalidate the importance of certain time-consuming manual steps that opens up the process for further challenges. You should rethink process design to smooth out bottlenecks that may be costing you money by involving all the key process stakeholders and taking their inputs for operational process flow changes. Having a logically established process to use that is recurring, is useful in reducing chances of errors and boosting the morale of employees.

3. Definition of Input & Output Design Grids:

Standardization of data improves clarity and decreases ambiguity. It allows users to manage future changes and requests a lot more effectively. A good implementation approach focuses on proactively defining input and output structures and touchpoints to limit chaos during data exchanges while processing. It allows you to automate data transfers and significantly reduce the chances of error.

4. Design of Operational Calendar:

Clearly defined dependencies can be leveraged to develop an ongoing operational calendar that takes into account all the key steps associated with data ingestion, parameter management, incentive processing, reporting and approvals. Most of this can then be managed with the help of scheduling capabilities of the platform and automated reminders for various touchpoints. Good platform allows users to efficiently manage operational timelines assigned to individual tasks, helping in identifying problems and solving dependency conflicts even before you begin. Even if the operations change and deadlines are pushed further, plans can still be adjusted with utmost ease and you can still keep your progress on track.

5. Design & Management of Parameters:

Proactive understanding of the business touchpoints, historical changes and expected future events can facilitate design of parameters and exception tables that can effectively drive the ongoing processing. This enables significantly higher change efficiency and helps the system be in sync with market events all the time.

6. Workflow Definition:

Design appropriate workflows so that oversight on changes, exceptions, and adjustments are enabled. You need to ensure that all the operational paths are covered including sales credit mapping, query/disputes, payout approvals, etc. All the business process touch points should have an appropriate workflow defined to enable accountability within the process.

7. Improve Incentive Plan Effectiveness:

Building a growth-oriented feedback culture is extremely important to improve sales performance. Consistent and regular feedback from salespeople helps you improvise the incentive plans/schemes, resulting in improving the overall effectiveness of your incentive plan. In a way, good platforms can help you gauge the pulse of how your salespeople feel, and what frustrates them. Enabling users to report disputes helps in identifying process gaps. In addition, a good platform also gives you post hoc plan performance dashboards that can be used to make further tweaks to your incentive plan and ensure that the plan continues to perform at the desired level. If you know what’s working or not working then the adjustments to the plan can be made easily.

8. Enable Transparency:

Giving access to interactive reports and dashboards to the salesforce can significantly improve the alignment and motivation of your salespeople. Actionable nudges can be enabled with the help of the platform for better planning by salespeople. Improved analytics synergized with the increased capability of data to be seamlessly flown to BI tools, resulting in far more accurate predictions being reported and ultimately better business decisions being made. In addition, salespeople can have access to gamified tools and what-if calculators to model out different performance scenarios and better understand the expectations and their earning potential.

Conclusion:

Comprehensive sales compensation management platform and experienced implementation teams can act as catalysts to improve the overall effectiveness of your incentive program. The time for organizations to prepare themselves for the next year is now and in order to do so, identifying the right tools and partners that can help them change their incentive game, is crucial. With the right combination of tools, people and processes only a winning incentive program can be implemented.

Organizations generally perform a periodic assessment of their incentive plan design using several qualitative and quantitative metrics to ensure that plan is fair and continues to pay for performance. However, it is also important to review the overall quality of ongoing sales incentive operations to ensure that certain safety and hygiene essentials are in place for timely and accurate incentives.

At the strategic level, you need to ensure that an effective program governance framework (Safety Guidelines) is in place that takes into account various elements of successful operations:

1. Comprehensive plan design documents that summarize a variety of business scenarios for salespeople and ensure complete transparency across all stakeholders.
2. Standard operating procedures (SOPs) that act as a “How-To-Guide” to run sales incentive operations at the desired frequency. This document should have all the required steps including quality checks, sign-offs, and approvals.
3. Quality checklists/processes should enable the high accuracy of calculated sales incentives by incorporating manual and automated checks at the input as well as output level.
4. Communication protocol to account for different touch points within the end-to-end processes regarding data discrepancies, quality issues, payout disputes, approvals, changes, etc.
5. Compliance guidelines should be in place to audit process runs, changes, adjustments, approvals, etc.

Similarly, at the tactical level, there are additional essentials (Hygiene Factors) that should be put in place to improve the overall effectiveness of the administration of your sales incentive operations:

1. Ingestion of as-is raw input files without any need to do manual data changes or transformations
2. Input and output file movement should be automated to avoid wrong data processing
3. Parameters should be in place to manage frequent changes and plan exceptions
4. Detailed calculation reports should be in place for validations and dispute management
5. Analytics and visualizations for quick decision making
6. Plan modeling capabilities to do quick what-if analysis for desired plan changes
7. Access to key plan health parameters to evaluate the quality of design on an ongoing basis.

Sales Incentive Operations are generally not given the importance they deserve. Some of these safety and hygiene elements may look trivial but play a significant role in the overall impact of the program and its ability to meet desired strategic business objectives. Actions on these essentials not only help in better alignment but can also help in improving the overall engagement of the sales force, optimizing the sales incentive operations. Improvements on these fronts can result in reduced operating expenses and increased net selling time which boosts top-line revenue.

Incentive Compensation plan facilitates the alignment of salespeople behavior with broader business objectives. There are guiding principles that need to be followed while designing an incentive plan.

While designing a new incentive plan or making any specific tweaks to the existing plan, following steps should be taken (scope of the phase needs to be decided depending on the nature and reason of change):

• Immersion & Situation Assessment: Understanding of existing plan structure and qualitative assessment of key stakeholders
• Historical Performance Analysis: Quantitative analysis of performance data to better understand the effectiveness of current plans and performance patterns
• Develop Incentive Plan Options: Identify key business objectives and design guiding principles driving various payment parameters such as caps, floors, qualifiers, frequency etc.
• Qualitative Assessment of Plan Options: Assessment of plans in the light of guiding principles ensuring fairness and differentiation in payments based on different performance levels
• Financial Modelling: Prediction of total compensation as well as impact on individual salesperson payment based on current performance in a new plan scenario
• Final IC Plan Communication: Selection and communication of the incentive plan design using multiple channels

This blog post will focus on minor tweaks to be made to the existing incentive plan based on changing organization priorities or certain market events. These circumstances can result in following the type of plan changes:

• Performance metric change
• Payout curve changes
• Slope Change
• Threshold change
• Cap addition/deletion/update
• Commission rate modelling
• Updated sales/goals data due to alignment or market changes
• Change in plan component weights
• For the entire salesforce-geographical combination
• For specific geographies
• Addition of qualifiers
• Performance multipliers
• Change in rules for HR exceptions

Impact of any of these changes can then be seen in the overall performance of affected salesforce-geographical hierarchy combination:

• Plan performance parameters
• Total Payout
• Min Payout
• 10th Percentile
• Median (100%)
• Average (100%-105%)
• 90th Percentile
• Maximum Payout
• no. of territories above cap limit
• Engagement Rate (100%)
• Meaningful Engagement Rate (70%-80%)
• Payout scatter for territories across 2 models
• Payout statistics and distribution
• Top 5 performers in base vs. universe
• Bottom 5 performers in base vs. universe
• Top 5 payment increases
• Top 5 payment decreases

Output of the above tables can help relevant stakeholders decide whether to move ahead with the new plan parameters after comparing the payout statistics with plan design guiding principles.

Aurochs Software’s IC Calculation engine has built-in capability to support modelling needs for different pharmaceutical clients. Do you have similar needs within your sales organization? Does your sales organization group constantly struggle to keep your incentive processes up to date to meet business changes? We at Aurochs Software would be happy to engage in a friendly, informal “sounding board” discussion. We can offer an ear and views based on our years of experience working in this area, and can also help with some ideas, contacts and solutions.

2020 has been a landmark year for all the wrong reasons and has brought never seen like challenges to the fore. One of the most hit functions in the life sciences organizations has been the Sales Operations group. They are constantly working towards better understanding the commercial impact of the pandemic on the organization. The need of the hour is drawing insights from the unstructured and unorganized information to improve the overall ROI and efficacy of sales & marketing spend. In addition, they are constantly striving to keep their salesforces engaged and motivated during their trying times by adjusting their sales incentive plans to minimize the impact on financials for sales personnel.

In this context we held discussions with several commercial leaders from the life sciences industry & learned about different approaches these organizations are adopting to adjust their IC plans. The primary struggle highlighted across the board was the inability of their existing incentive compensation systems to deal with the localized changes easily due to inflexibility & rigidity.

The inability of incumbent solutions to simulate desired plan changes leads to increased use of external vendors for plan modelling/analysis. The modus operandi in such cases is to externally calculate rule-based payment adjustments which are then applied manually to the system. Few of the leaders cited introduction of newer type of qualitative plans requiring change to existing data structures to calculate and report sales incentives. While few have managed to do it somehow in their existing systems majority have not. This employs stop-gap patches leading to increased complexity & manual interventions in the existing system resulting in more payment errors and delays in payroll. This automatically increases disputes directly impacting salespeople engagement & motivation. A common theme that arose across all the leaders we spoke to focused on increase in change management instances with longer turnaround times and more investment in terms of budget & bandwidth of key client personnel. The second theme inclined more toward the risk associated with process compliance and auditing gaps due to significant increase in manual interventions and desired adjustments to prepare system before calculating targets and incentives.

The challenges discussed above while highlighted by the pandemic have been ubiquitous for very long due to lack of innovation in the incentive solution ecosystem. Most organizations have learned to live with them and internalized such delays and inefficiencies. Have you imagined processing end to end incentives in less than an hour? Have you contemplated implementing a new plan for your salesforce in less than a day? Organizations need to change their outlook from being accommodative and managing daily firefights and be more demanding about their real needs. They need to focus on being more experimental and agile while delivering strategic and actionable insights to relevant stakeholders. Dream big. Technology ecosystems and interfaces have evolved significantly over the last decade. It is time to catch up.

Incumbent solutions are architected to maintain your heavy reliance on their consulting organizations for change management and ongoing processing. Lack of scalability and transparency in infrastructure and related fees is resulting in overages even with small spikes in processing data and storage volumes. These factors are contributing to an increase in the overall cost of ownership of your incentives program.

Imagine a solution that allows you to be self-sufficient, maintain a lean team while improving transparency and engagement of your salesforce. You need a solution that features:
1. built-in IC intelligence
2. an intuitive business workflow specifically for the life sciences industry
3. enables end-to-end process automation
4. allows you to manage ongoing operations with the click of a button
5. a comprehensive quality assurance framework
6. integrated operational workflows like disputes and payment approvals
7. out-of-the-box multi-device capable reports and dashboards
8. plan simulation and comparisons
9. internationalization of reports

Organizations can now step it up and bring the delight and enable the usage of incentive compensation as a strategic lever. The time has also come to provide the salesforce with timely actionable insights to help them focus on improving the topline while alleviating the constant fear of incorrect incentive payouts. In such unprecedented times the organization faces several challenges that need to be addressed. Incentives management however doesn’t need to be one of them.

Are you constantly facing any of the above challenges? If the answer is yes, then let’s talk. Feel free to reach out to us at amit.jain@aurochssoftware.com / sumeet.shah@aurochssoftware.com to talk about your current challenges and bounce off any ideas with no strings attached.

Change Management inherently involves implementing processes, workflows, automating manual tasks, reporting and integrating disparate elements within the impacted ecosystem. Almost 70% of change initiatives fail and less than 1/3rd achieve clear success. The high rates of failure can be attributed to stakeholder resistance. If a handful of stakeholders resist, there is an issue with them; however, if the broader organization shows resistance, it may be a result of painful past experiences from the inflexibility of systems to adapt well to change. Change management failures also result in the introduction of parallel tools to implement the same process that usually prove to be a major overhead for these stakeholders and the organization in general.

However, the current situation has practically proved that “change is the only constant” in today’s world. We are going through a period of constant change and almost all organizations are experiencing the need of revamping their IC ecosystem as it directly impacts the behavior of their salesforce. While this need is inevitable, changing unfriendly systems can not only lead to stakeholder resentment but may also result in reduced productivity and high turnover.

Incentive plan design and associated elements in its realm like accelerators, compelling payout curves, quotas, territory alignments, and contests still remain the most important aspect to create an immediate positive impact on sales reps behavior. However, the big question is how do we accomplish this change? Consider the below steps while working through a change in your IC ecosystem:

Identify what needs to change

Organizations can be too rigid or too fluid. They may extrapolate current situations too much into the future, anticipate needs and revise their plans to avoid changes later. This approach can also be attributed to the pain associated with making changes to incumbent solutions. At the other end of the spectrum, organizations start changes late, do not read the situation in entirety and make half baked changes. This results in a demotivated salesforce which warrants need for further updates to the plan and IC solution. Instead, organizations should follow an iterative process and answer a series of questions ranging from
– need of changes to existing set of metrics
– introduction of newer metrics
– field challenges to achieve them
– operational challenges to collate, compute and report them
– exception handling in the overall process and impact on other systems.

Communicate the change

Another problem organizations face is their inability to communicate changes and their impact reliably with sales/finance/hr leadership before putting it in effect. The key to success is achieving these stakeholders’ buy-in quickly and efficiently. If your IC solution is capable of modeling and simulating the changes efficiently and report the impact of these changes to the stakeholders, the resistance to change can be broken down. This also helps sales leadership communicate to the field and mentor as to how the change will impact their inline reps and managers.

Build self sufficient parameter driven system

With introduction of newer metrics & evolving selling models, the ability to swiftly adapt to constant changes easily is a key requirement of any incentive compensation solution. Traditional solutions struggle with this aspect due to their custom code nature that can only be modified by their in-house teams. Dependency on vendors, availability of their resources and complex resourcing arrangements prove to be a bane resulting in slower timelines and costlier changes. A parameter driven no-code solution would significantly reduce the time to make changes and removes technical resource requirements, siloed implementation knowledge and would truly prove to be effective change management. Armed with intuitive interfaces to update parameters, audit tracking to identify change personnel and configuration driven rules to expedite changes allowing organizations to maintain implementation integrity.

Automate key processes using out-of-the-box solutions

As organizations evolve, so do IC plans. This in turn leads to introduction of several manual processes reducing the solution to be a mere IC calculation engine. Organizations usually introduce manual processes to avoid making change to the IC solution since traditionally it has been a very tedious task. This increases the risk of inaccurate and delayed IC processing and making it a labor intensive process over time. Ideally, every time something changes in the IC plan or any related processes that impact IC, change management should kick in to account for how those processes can be mapped out and can be automated. Traditional systems fail at it and as a result over time, IC stakeholders become more reluctant to effect change management to their systems. New age solutions with out-of-the-box, no-code automation features however inculcate trust in stakeholders and embolden them to automate manual tasks as they are introduced into the process. This expedites the overall sales compensation process and also realigns human effort to more value added activities like sales force effectiveness and performance analytics.

An incentive compensation plan is key to engaged and motivated salesforce. However, it needs to be aligned with organizational objectives and at the same time it needs to be compelling enough to positively influence sales reps behavior and in-turn performance. This needs to start from the top and trickle down the hierarchy through a streamlined and well thought out process ensuring your salesforce understands the impact. However, an incentive plan will only be effective on paper unless it is backed with an agile and out of the box solution that helps your commercial excellence / sales operations team. Such a solution becomes an effective partner to the sales operations team since it can adapt rapidly to ever-changing needs and automate new processes that are introduced over time.

As an extension to our learning and application of Payout Curves, here is last one of the series. We started with learning about fundamentals of payout curve followed by best practices in designing payout curves. With this article we will learn about different type of payout curves that are used widely in the pharma industry, and when to use them.

Different types of incentive plans

There are two basic incentive schemes that define all the different incentive plans — Commission and Bonus.

Commissions are a set percentage of sales generated in the territory paid to sales personnel. The commission rates are determined on the gross margin of the product and how much the company is willing to share the revenue with the sales personnel. If the sales are generated solely from the effort the sales personnel make, the commission is set to a higher rate. If there are other market factors involved, the commission rates may be reduced. Commission plans are preferred if the territories have similar potential and the sales cycle are less than 90 days.

On the other hand, bonus structure generally pays the sales personnel a percentage of sales achievement or specific objective. Bonus plans may also pay a fixed dollar instead of a percentage of incentive target when the sales personnel achieve a predefined milestone. These plans work best when the territories have uneven potential or if the sales cycle is longer than 90 days.

Some firms may also use a mix of bonus and commission plans to iron out the inconsistencies in territory potential and to also motivate the sales personnel to generate higher revenue.

Linear Payout Curves

Linear payout curves pay the salespeople on a linear curve where each percentage achievement corresponds to a specific payout. The payout could be a percentage of the product or portfolio target or may be a specific dollar amount.
The Linear curve can have a constant, progressive, regressive or mixed relationship with the payouts.

A constant linear curve will pay the salespeople on a particular rate regardless of the sales achievement. Although this method prevents undesired sales timing behavior, but it is not motivating enough for the salespeople to strive for sales beyond their objectives.

Progressive curves solve this problem by introducing a higher rate of payouts above target, where the rewards for making sales suddenly jumps if the sales are made above quota. This rewards your top performers and motivates them to achieve greater sales. On the other hand, it also brings its share of challenges of setting the correct quota for each territory, managing sales timing, managing disproportionate effort to boost sales of product where quota is met and preventing windfall sales when forecasts are too conservative.

Regressive curves tend to reduce the rate of payouts once a certain benchmark is achieved. This is the least popular method among salesperson as it hinders their capacity to earn high incentives. Such curves are used mostly when there are serious production/logistic limitations and when the product sales are under forecast.

Mixed linear curves combine the progressive curves and the regressive curves to make the best out of motivating the salespeople to achieve more than their quota and provide protections of cost when the forecasts are uncertain. The challenge for such curves is to administer as it may become complex and to set accurate goals across territories to manage fairness.

Step Curves

Step curves are mostly used in tiered plans where each tier has a different commission rate or bonus amount. Step curves would be beneficial in scenarios where the market is unstable and the forecasts are not accurate, but you want your salespeople to just put some additional efforts to reach the higher tier and earn additional income. Such curves help the company keep a tight control on the costs and they usually set the step ranges where they are sure that the return on the sales would be good.

Step curves are the norm for ranks plans, as each rank or a group of ranks may be paid a certain percentage of target or flat amount as incentives. Following are few examples

Matrix Payout

When you want to have multiple measure to determine the payout for a product, you can use the matrix curve approach. The sales strategy and the quality/measurability of data may vary across products and channels. In such scenarios, the management may choose to rely on multiple metrics to determine the payout. For example, the management may want to tie the payout to sales achievement as well as sales growth to determine the product payout. On the other hand, the management may want to put qualifiers of a different metric to on the achievement for a salesperson to earn incentives on one product.

Payout matrix can either be additive or synergistic. Two or more metrics may keep adding incentives for a product based on different criteria or may be plotted on a matrix to produce a singular payout.

We will explore them in the below graphs.

Conclusion

With the availability of multiple types of curves and the thousands of permutations and combinations, these curves should be able to cover almost all payout scenarios. A company may choose one or more metric, one or multiple curves or a combination of curve types, to cater to different products and segments. A company should understand its product and the market, the culture of the salesforce and what they want it to be, and the company’s strategic goals, to be able to design an effective payout curve.

Designing a payout curve is one of the most important steps to ensure that the incentive plan is aligned to broader corporate goals and has enough potential to entice salespeople to sell more by incorporating understanding of the selling process and competitive environment. Payout curves define the impact on potential incentive payout based on various performance levels and can be used to drive the desired sales behaviors. A well-designed payout curve helps in hiring and retaining top sales talent and motivates existing salespeople to achieve more sales and excel in the field.

An incentive payout curve defines the relationship between target achievement % and the associated payout for different levels of performance. Payout curve design needs to be such that it allows desired differentiation based on the performance. It is imperative to model various inflection points on the curve to meet the overall brand objectives.

General Definitions

Threshold: Threshold is the performance point below which a salesperson is not paid any incentives. It should be set for each product separately to account for the specific behavior and market conditions for the product. The placement of the product in the product life cycle also plays a significant role in deciding the threshold. Thresholds are generally set at a performance so that around 90% of salesforce achieves that level of performance.

Target: The target refers to the performance level of a salesperson where they reach 100% of the earnings for that product. It is generally set at achievement of 100% of product quota allocated for the territory where the performance is being measured.
Excellence: Excellence refers to the peak performance point beyond quota for the salesforce. About 10% of the salespeople are expected to achieve excellence performance. This is also the point which corresponds to a higher incentive payout than at target.
Deceleration: Deceleration is the reduced rate (linear slope<1) at which the payouts can be achieved.
Acceleration: It refers to the higher rate of payout per point increase in performance (linear slope>1).
Cap: Cap refers to the highest payout that can be achieved in the plan for a product. Once a salesperson achieves the performance equal to the cap, no more incentives will be earned for any further increase in sales.

Summary

Payout curves tie many different aspects of incentive compensation together like the company sales strategy, salesforce motivation, retention of talent, and the financial balance of revenue and incentives paid for it. Designing a payout curve is an amalgamation of mathematics and the art of management. Inaccuracy in the payout curve may cause loss of employee motivation, misplaced sales strategy and eventually losing the brand value and market share for the company.

Deciding the threshold and excellence for payouts

A company in general, has a fixed commission budget. Scenarios may occur where the company is paying underperformers at the expense of paying your top performers or overpaying top performers by compromising on payments of their core salespeople. Both such scenarios can be avoided by carefully designing your threshold and excellence points.

Apart from deciding the targets for annual goals, a company must also consider other factors that include external parameters associated with macroeconomic factors, competitive opportunities and threats, technological disruptions, and regulatory changes. The more volatile the economic and business background, the more likely a payout curve is set to a wider range for threshold and maximum percentages. The below mentioned guidelines can provide a good starting point.

Threshold for payouts should be:
– At the lower end of a company’s peer-performance range (10th percentile)
– Above the previous year’s results if the markets are growing
– High enough to create some modest value for the company
At a point on the curve where sales personnel have a 90 percent chance of achieving the minimum payout

Excellence for payouts should be:
– At the top end of peer performance (90th percentile)
– In line with previous performance and record-level company performance as is appropriate
– At a level that will create significant value for the company as compared to peer and historical performance
– At a point where sales personnel have about 10 percent chance of hitting the maximum

Should there be a payout cap?

The decision as to whether to cap an incentive plan is driven by the firm’s ability to predict market demand accurately, as well as the firm’s financial goals, culture, and philosophy. Caps have some considerable disadvantages. They can dampen the motivation of top performers as one of the key points of a sales hiring is that the company tells you they have uncapped payout curves. They can delay the incremental sales by top performers so that they can get appropriate credit for it in the next payout period.

Some companies may want to put soft cap instead, where any payout exceeding a certain high performance in one payout period is placed on hold and is only payable if the salesperson makes their goal at the end of the plan period. Soft caps tend to be more accepted as the possibility of making high incentives is still there but on some conditional basis (e.g. continuity of performance through the plan period).

Despite the danger of damaging the motivation of hard workers, incentive caps have an advantage in unstable markets, where it is difficult for management to predict future demand accurately. Using an incentive cap prevents unearned windfall sales if goals are set for a sales level that turns out to be easily attainable. Caps can also be used to promote controlled selling and ensure higher customer service for complex products which require a long implementation cycle.

The value of upside and downside acceleration

Most companies have accelerators and decelerators built in their payout curves. Such payout curves give higher payouts to sales personnel overachieving their targets and penalize the low performers who do not achieve a certain sales level by further lower their payouts as compared to their achievement as per a set quota.

The trigger of the accelerator could be at the last year sales or slightly above that to account for carryover sales from the prior year. This motivates the sales personnel to push through their quota and gives increased incentives (sometimes up to 3x) for each additional percentage of sales achieved over target. Accelerators can also be built up in a step curve where the commission rate is changed for all the sales accrued above the inflection point.

Similarly, having decelerators in a curve help push the sale personnel to achieve a viable sale below quota that helps both the sales personnel and is in the interest of the company as well. Decelerators can also be used to achieve overall portfolio focus where the decelerators are used above a very high achievement for products that are an easy sale and pushes the sales personnel to put their effort on selling other products in their portfolio.

Decelerators can also be used in places of payout caps where the earnings for a sales personnel ceases to increase significantly, helping the company plan for their inventory better without making the sales personnel feel that their earnings are being capped.

Financial Impact of payout curves

Payout curves define the willingness and ability of a firm to pay its sales personnel which aligns both with the corporate objective and the philosophy of paying for performance. Paying commissions from the first sales dollar results in the low performing sales personnel having at least some incentive incomes, making them complacent, and draining the corporate budget. On the flipside, not paying enough to your top sales personnel can result in them looking for greener pastures and will end up hurting the company’s revenues.

The best practices in designing the pay curves is to have a rigorous mathematical modelling exercise to find the balance between paying for performance and keeping the total cost of incentive close to the budget. A company should always strive to keep its top performers to keep bringing in top revenue, while motivating the low performers to contribute to at least some sales growth. Having a well thought-out payout curve takes care of the low performers, the large middle percentiles, and the truly high performers.

Summary

Designing and implementing a payout curve that caters to both the need of the company and the aspirations of the sales personnel is a difficult, but not an impossible task. Payout curves are not the complete solution to the myriad challenges of sales compensation but add much value to the sales strategy and salespeople motivation and overall engagement along with retention of top performers when implemented to accurately pay for desired sales performance.

If you are following the model of salary and sales based incentives, putting the goals and objectives out on the display and on your devices for communication is an unmatchable convenience not just for you, but for your sales representatives too. A sales compensation management solution suite automates the calculation of incentives and provides a detailed look into the earnings and performance for all stakeholders. To be able to compare their performance with goals, track their growth, and get access to their potential earnings, what more can the salespeople ask for?

Owing to the increase in demand for this kind of automation in the market, we have shortlisted the top ways in which Incentive Compensation Management Software can fuel your success:

1. Usage of Analytics to increase sales:

In order to tackle the challenge of forecasting the demands of consumers and eventually to understand the sales patterns, analytics and big data are required. These technologies can help organizations come up with the best estimates of customer or geography level demands using predictive algorithms. It also helps them visualize behavioral patterns of their key customers. With the help of actionable information, efforts can be made to sell the products and services at the predicted target time, to the target audience or the target region for better outcomes and sales performance.

2. Increases earning potential of salespeople:

Good solutions enable organizations to provide actionable insights to individual salespeople to help them improve their overall performance. In addition, it provides complete visibility into current performance and the breakdown of calculated incentives. It also gives access to what-if calculators for salespeople to analyze their future earning potential based on closing deals from their current pipeline. This acts as a great way to align reps to their incentive plans and motivate them to perform much better.

3. Saves Time and Money:

Without a doubt, companies spend a considerable amount of time, energy, and human resources in manually managing inputs, estimating and cross-verifying sales compensation amounts for their salespeople using excel spreadsheets or home-grown systems. Even after this, it can get incredibly confusing, results become prone to errors and at times creates several auditing issues. Automation of sales incentives processes makes the process much simpler, improves the operational processes and significantly reduces the incentives calculation time. Not needing any skilled consultant to add complicated formulas in a spreadsheet that might still lead to inaccurate results and could probably take much longer to process is a clear merit hands-down!

4. Set goals and keep track of them:

These platforms allow sales operations teams to allocate fair sales targets after modeling different business scenarios. Built-in process transparency can expedite the buy-in of salespeople to their calculated sales targets. In addition, these platforms are designed to enable salespeople to monitor the sales performance on a daily, weekly, and monthly basis. Using interactive dashboards and reports with sales data summaries, salespeople may also track their ongoing performance and resulting earning potential. This sets for a great deal of motivation. The best thing is you can set them up in just a few clicks, no coding required.

5. Maintains Transparency and Visibility:

Sales reps know this in real-time about how much sales compensation they have earned. There is no shadow accounting. Nothing beneath the books. The personalized scorecards for the employees provides complete visibility and transparency. People across reporting levels also get access to their own performance, summarized information and reporting level details . The finance/HR/Operations departments do not need to create temporary statements as reps already have access to the data. Teams and individuals looking at the same set of data align the understanding and knowledge of all the employees.

Conclusion:

In a nutshell, by using incentive compensation management platforms for automation, the organizations get significant additional benefits as compared to just regular operational gains. These platforms facilitate the trusting environment and improves the overall culture alignment within the organization resulting in higher engagement, lower attrition and better sales outcomes.

You may also check Automated Sales Incentive Solution: A Good Investment? to know more.