Oh, you generous sales compensation plan manager! You were so kind to your sales team this year, paying them more than they earned! Unless you paid them less than they deserved – but, did you ever hear it from them when that happened! They made sure you got that computation correct. But when you overpaid, they were strangely silent. Weird, huh?
But back to your generosity. If Gartner is to be believed – and let’s continue to be generous here – every year, between 3 and 8 percent of total compensation is overpayments. That is to say, excess money given to salespeople when they didn’t earn it, the result of computational errors in comp plan administration. It’s a little gift that must come as quite a surprise to your salespeople, a little something extra in their envelope. Your kindness knows no bounds!
And if you apply the Gartner percentages to the amount paid in commissions in the U.S. (according to the Bureau of Labor Statistics), your generosity is indeed nearly boundless! Based on the projection of commissions paid in 2016, U.S. companies dispensed between $1.95 and $5.19 billion in overpayments in 2016. Money for nothing, as Mark Knopfler might say. Of course, that amount may be off, since some salespeople may have paid back their overpayments out of sheer honesty. And I may have taught a penguin to play the accordion in 2016, too.
The Bureau of Labor Statistics also points out that there are 5,825,458 businesses in the United States. That averages out to between $335 and $891 per business, but that would include all businesses, including many that don’t use commissions. So, the average company overpays a significantly higher amount. And the larger your company, the larger your overpayment bill becomes, creeping into four, five, and possibly even six figures.
Let’s compare that overpayment number against total employees. U.S. businesses overpay between $16.82 and $44.77 per employee. That doesn’t seem like much, but don’t forget that also includes a lot of non-commission employees. And let’s say your company has 1,500 total employees. Even with the artificially low number given above, that adds up to as much as $67,148 a year in overpayments. A more traditionally sales-oriented company would have more salespeople and, consequently, a much higher annual overpayment number.
How do you drive those overpayments (and underpayments, for that matter) out of your commissions computations? Introduce automation to the comp plan management process. These overpayments are the result of errors – often, simple human errors that are introduced as comp plan managers attempt to run their plans through spreadsheets. Spreadsheets have a shockingly high number of errors on them, and there’s nothing that makes a comp plan spreadsheet less vulnerable than any other spreadsheet. These small errors can become very expensive quickly – not just in overpayments but in the penalty in time and stress for comp plan managers who must also deal with disputes with salespeople. This can keep them from focusing on ways to modify the comp plan to best motivate sales, meaning they impose an opportunity cost that’s even harder to compute than the cost of overpayments.
We’d all like to pay our salespeople more – as a result of their outstanding performance, not because the way we manage our comp plans is outdated and primed for mistakes. Is your generosity accidental and not intentional? If so, look into compensation management right away.
How does CallidusCloud help reduce commissions overpayments – and make more money for our customers? Get the lowdown on CallidusCloud Commissions.