There are some things in business that are hard to research, and they are that way for very practical reasons.
People don’t like to admit when they make mistakes. You might hear executives spouting the vapid bromide“fail fast, fail often,” but you’re not going to hear them speak in detail of those failures when it affects their careers. It is, to use another vapid bromide, career limiting. As a result, when a study poses the question, “how have you screwed up your part of your business lately?” people are less than enthusiastic about answering honestly.
That makes it hard to find good benchmarks for some things. Sales commissions overpayments are among them. After all, no one managing the commissions process wants to admit, “before we changed our process,we were giving away $150,000 a month without knowing it. And I was overseeing it!”
However, the absence of data about a starting point doesn’t change the fact that changing the process – often,implementing a compensation management solution – has a significant impact on the accuracy and, ultimately,effectiveness of a comp program. We’ve talked about the benefits of accuracy on the payment side, but there are benefits on the savings side as well.
Gartner estimated that overpayments of commissions and bonuses accounts for between 3 and 8 percent of total compensation spending annually. Bureau of Labor Statistics numbers pace the total payout of commissions in the U.S. at $63.84 billion annually. If the numbers are correct, that means that between $1.92and $5.11 billion of that are overpayments – money that could have been used to further build businesses but instead became a windfall to salespeople.
So, if you’re wringing your hands about an investment in incentive compensation software, think about this:
what is your contribution to that enormous pool of overpayments? And is that contribution greater than the cost of a compensation management solution that would slash overpayments? Studies have shown that the introduction of an automated solution reduces overpayments by as much as 90 percent.
Compensation management solutions reduce the costs of another area of compensation that goes unreported all too often: shadow accounting, or the practice of salespeople keeping a parallel set of books to double-check that their commissions payments are accurate. When a business deploys a compensation management solution, the time salespeople spend on their own set of records plummets by 60 percent, restoring valuable sales time and making a direct impact on sales performance numbers.
This is money that many businesses are leaving on the table by sticking to outdated – and often manual – processes. This is in addition to the hassle of dispute resolution and the inability to use incentives to drive behaviours in a more granular way that are imposed by manual systems.
The formula is clear: compensation management software pays for itself in multiple ways. Intentionally for going the technology is simply not a logical decision when you do the math.
To see how a compensation management solution can benefit your company, visit our Commissions page.