Optimize incentive compensation in 2018: Credit, calculate, and change (Part 2)
A new year means a fresh chance to take a look at your incentive compensation plans and perhaps a second chance to untangle and clean up the existing formulas, data logic, and compensation rules. In our last post, we covered optimizing your incentive compensation system from a holistic operational perspective. Now we will take a more granular look at how to optimize the process of creating changes within incentive compensation plans. Here are the top tips we’ve found, split into three crucial categories once again: credit, calculate, and change. Crediting: Making, breaking, and reevaluating crediting rules Crediting is a key part of your whole incentive compensation. Not getting paid in a timely and accurate manner tends to undermine the morale of a sales force. Taking too long with outdated technology and techniques is a drain on IT and other internal resources. So, as part of your annual review, take a look at the crediting rules within your sales compensation application. Within the course of a year, crediting rules may become outdated as they have to do with products that are no longer sold or situations that no longer occur. These rules may be slowing down your system as unnecessary pieces of data are logged and run. On the other hand, changes in the marketplace may render new crediting rules necessary. The following questions may help you evaluate your current crediting rules:
- Are rules for crediting changing based on new laws and standards, such as ASC 606 or IFRS 15?
- How long does it take your system to process your crediting rules?
- How do you set up territories and territory credits?
- How is the allocation stage performing in your plan?
- Is there a change in the granularity of the data that is needed to pay your reps?
- Can you eliminate crediting rules that are no longer applicable?
Finding the gaps and changes for the new year is crucial. It also helps if you have a seamless commissions automation system where crediting is an organic extension and logical endpoint of the plan setup. If you have to take a lot of extra manual steps, then it makes your work harder. Calculate: Automating plan components Calculation forms the backbone of any commissions automation system. To get a fresh start in 2018, consider how you are calculating how much each sales rep makes. As you bring in all of your payout components together, you may start to notice patterns and manual tasks that could easily be automated. Save time by using the following questions:
- Based on all your various compensation plans, what are the unique mixtures of plan components that drive overall comp plans?
- Are there any specific plan components you are doing manually outside of the system? Is there an opportunity to bring that into the system? If not, what is the limitation of the incentive system?
- Are there unique requirements (such as a SPIF) that is more difficult to automate?
- Does your data structure support automation of all incentive compensation plan requirements?
- Are there adjustments that encompass draws and guarantees? Can these be automated?
The goal here is more automation, and a good commissions tool that makes automation easier and scalable is key. Change: Driving efficiencies in exceptions and plan changes Finally, as you think about your yearly process, consider how your company handles adjustments for annual plan changes, mid-year changes, rate changes, and periodic cycle changes. In order to drive efficiencies within the application, these processes must be streamlined. To get a full view of the effort needed to change the mechanics of how the components of the incentive compensation plans are calculated, answer the following questions:
- How do you determine what plan changes to make?
- What tools are you using to forecast results or identify the plan changes that need to be made year over year?
- What is the hardest part about doing rate changes?
- Does it take more effort to plan for monthly plan changes or annual ones? Why?
As you answer these questions, consider fully mapping out your current state and future state, bringing in the resources needed to build the roadmap to get from here to there. Click here for more resources about incentive compensation.