Financial Software Decisions - Employee incentive management

Keeping track of sales commissions takes time and money. Add to those costs the fact that some experts say overpayment of commissions can be as high as 8%, and you can understand why companies need help, and why several are turning to enterprise incentive management (EIM) software.

This new class of software aims to quickly and accurately calculate incentive payments and update compensation plans, so incentivising salespeople.

Managing variable compensation plans is extremely onerous using traditional home-grown or spreadsheet-based systems, which is why overpayment is so common. “What we find typically in a post implementation world is that overpayment ranges from 3% to 8% – and it’s very rare there is underpayment,” says Joe Galvin, a Gartner Research analyst. “Also, sales reps tend to stop selling as soon as they receive their registers and don’t return to selling until they’re confident that they are accurate or, if there are errors, that reconciliation is in place.”

Currently, EIM software is available from young companies such as Motiva, Callidus Software and Centiv, as well as from ERP vendors, such as SAP, Siebel Systems and Oracle. PeopleSoft is still developing its solution.

Michael Cully, vice president of finance at Veritas Software Corp says his company implemented the Callidus TrueComp EIM solution to manage compensation payments to its field sales staff, and is now realising the benefits.

“Errors are dramatically reduced. Prior to implementing the software, I would get one call a day from a sales rep complaining about payment, now I might get one call a month,” he says.

Cully adds that staff used to spend an inordinate amount of time monitoring their payments. “The EIM implementation has definitely improved productivity in the field as they spend more time selling and less time tracking – and their morale has improved,” he says.

Salespeople on commission are always quick to point out errors that result in underpayments – but no-one tells if they are overpaid. So reducing errors has also helped cut Veritas’ overspend on commissions, says Cully.

While pure breed EIM vendors have the upper-hand in terms of functionality, suite vendors have an advantage in that their solutions integrate with their ERP applications. Galvin recommends that companies opt for a best-of-breed solution if accurate and timely reporting and payment of incentive compensation is their priority. However, he says that, if a company already uses an enterprise suite vendor’s software, or has bought the EIM module as part of a CRM solution, and incentives are less important, the ERP or CRM module should suffice.

EIM software can also be used as a tactical tool to control expenditure, says Kit Robinson, vice president at Motiva. “Increasingly, people are looking at doing pay for performance for other parts of the company,” she says. “There’s a couple of things driving that. One is that everybody’s looking at their expense line and one of the biggest expenses is what you’re paying your people – and if that amount is fixed it doesn’t give you much leeway when market conditions change. If you are able to reduce the fixed cost for compensation, and increase the proportion that’s a variable cost, then you can fund growth with this variable pay.”

EIM can also be employed strategically. Michael Byers, president and CEO of Centiv, says that EIM helps companies align their strategy with the behaviour of their employees. For example, by adjusting compensation plans, the company can motivate staff to focus their sales efforts on a particular product line.

David Blume, European general manager of Callidus, says that using plans to modify sales behaviour in this way enables companies to introduce a revenue and margin sales model, moving away from the traditional volume sales model. Additionally, he says, it is vital that companies that sell through third-parties reward them competitively, accurately and promptly, in order to maintain their loyalty. Obviously, a pay-for-performance plan administered with EIM software is a great help in this, and can have a significant knock-on effect on market share.

Another advantage of EIM is that it can accurately forecast commissions, to avoid under- or over-accrual. “Either way it’s bad news,” says Blume.

“If you under-accrue, all of sudden there’s a big hole in accounts, which can affect the company’s stock price. But if you over-accrue, to err on the side of caution, you’re not maximising the use of available cash.

We’ve got lots of examples of companies being £1m out in terms of accrual and that hurts, because it is £1m you’re not earning interest on.”