How to Detect Payout Risks Before They Become Financial Problems

Typically you’ll hear about commission mistakes when a seller calls questioning their payout or finance catches a number that doesn’t look right. Or Payroll is trying to correct an error on a payout that’s already been run. Maybe we could be catching these mistakes earlier? ** 

When it comes to commission there is a lot of money at stake. Not only does it drive incentives but sales rep morale, financial projections and trust.

Many companies are finding out about these mistakes after the fact. Through reconciliations, spreadsheets, seller call outs etc. 

What if we could create a method to help detect payout exceptions before they happen?

By implementing a **Commission Accuracy Control Tower**. We can begin to spot payout risks and take action to correct exceptions.


1. Why Current Commission Controls May Not Be Working For You

We have all seen our current methods to check for commission errors. Whether its checking numbers post transaction or making sure a commission calculation matches our plan rules.

Its important that we continue to have these checks but what about the risks that could occur prior to us running commission?

If we were paying $25 Million out in sales commissions per year. And had an error occur due to our configuration of an accelerator. It would begin triggering earlier than it was supposed to according to our plan rule.

Let’s say we have 80 reps across 3 territories that are impacted by this.

Once we become aware of the error we will need to dig into those calculations, obtain approvals and figure out what to do. We’ll need to notify the sellers and make adjustments to our books.

All of this could be avoided if we were able to detect this risk earlier. Perhaps our control flagged a spike in our accelerator payout. We could dive deeper into our configuration, check our scenario payouts and know the payout is incorrect before it went out to the seller.

Not only did we prevent a commission mistake but we prevented expense that we didn’t need to incur.  

 2. What to use to detect payout risks 

As mentioned above we want to create a method that can help detect payout risks. There are many ways to do this. 

You can start by looking at transactions and checking for errors in your data. Missing transactions, duplicates, bad seller assignments etc. 

If you are aware of your data that you are expecting you can flag if that data isn’t coming in. Maybe your region didn’t send in the correct transactions that qualify for commission. Instead of running commission and correcting it later we know that we are missing data.

Next we can compare payout amounts to our plans and previous periods. If we have a plan rule that says an accelerator should kick in after someone reaches 120% of quota. And our commission calculation is kicking it on at 100% we know we have a mistake.

We can also use these to detect payout anomalies. Of course using past periods can be tricky as there may be good spikes in payouts. But if you build this into your methodology along with your other checks you will have a higher probability of detecting mistakes.

Territory and Crediting changes can also cause payouts to be higher or lower. Changes to territories or effective dates can greatly impact commission payouts. We can catch these exceptions and route them to be reviewed according to policy.

Finally we can flag any overrides or big adjustments. Maybe you want to know about any overrides that exceed $X or are repeated. You don’t have to stop the override just be aware of them.

3. Know your risks by dollar amount 

As you build out your commission control tower you want to make sure you know which exceptions are more urgent than others.

If you have 50 cents in commission off your payout your probably not too worried. However if you have a mistake that impacts 100’s of reps that’s a different story.

Make sure you understand which risks are bigger than others. Here are some examples that can help. 

Maybe we find 120 exceptions that we need to review before our payroll date.

Of those 120 we can break them down by:

a. Data related issues that may fall under normal threshold

b. Mistakes in crediting sales 

c. Anomalies that we think could be big payout errors

We can triage the 5 that we believe could cause big payout errors. While our standard procedure would cover the other 115.

There are many things you can use to measure your payout risks. By knowing your risks you can assign them to an individual and hold them accountable to close those items out.

4. Measuring your success 

Once you have a Control Tower in place you want to start measuring how effective it is. Some ways you can do this are: 

Payout Accuracy – % of payouts that you ran correct the first time

Mistake Found Pre Payroll – How many of the mistakes that you found were prior to payroll being approved

$ at Risk – How much money are you detecting that could be over or under paid (Not all will end up being mistakes)

Time to Resolution – How quickly are you resolving your exceptions

Mistake Trending – Are you finding the same mistakes over and over

# of Overrides – How many times do you have to manually adjust payouts

These are some of the things that you can measure to show your business that you are preventing mistakes and saving money.

As you learn from the mistakes you will start to find ways to improve your systems and controls. Whether that’s catching data integration errors or catching errors in plan rules.

Know Where Your Risks Are 

Commission mistakes can happen. The question is do you know where your risks are before they happen.

Create a Commission Accuracy Control Tower to detect payout exceptions before they become an expense.

Remember there will always be errors. The key is to detect them and know where your risks are.

By knowing your risks you can take the proper actions to prevent mistakes from occurring.

Do you know where your commission payout risks are?