Beyond Commission Adjustments: How to Eliminate Recurring Errors Before They Reach Payroll

Commission Adjustments can always be traced back to something that went wrong. The question is, are you learning from them or paying more money next month for the same mistake. 

It seems that Sales Compensation departments are constantly looking into why payouts are incorrect. Whether it be sales credit being wrong or calculating what someone is owed. They then have to deal with the frustration of sales reps who feel they aren’t being compensated properly.

Not only does this lead to incorrect payouts but it takes away from your Finance department. Having to process commission adjustments creates poor controls within your company and causes delays when reconciling payroll.

We want to show you ways that you can help reduce avoidable commission adjustments. So that they don’t make it to your commission calc and payroll process.

1. Don’t look at every commission adjustment individually 

There may be a bigger reason why you had to adjust that commission. Perhaps there was a missed transaction that was caused by an integration issue. Sales credits were applied to the wrong person or an accelerator wasn’t calculated correctly.

If you just process the commission adjustment and move on. You’ll probably have the same issue the following month.

Lets say a tech company is processing 2,000 commission statements per month. There are always a handful of transactions that are not showing up for commission. The sales compensation team finds out that it’s because their feed is sending those transactions after the monthly process.

They go in and add those transactions to the commission calc and recalculate what their reps are owed. Their reps now get paid what they should but what about next month?

You processed your adjustments but didn’t learn anything from them.

By breaking down why you’re adjusting commissions you can see trends. You can then assign those tasks to people who can fix the issue at hand. And ensure that it doesn’t happen again in the future.

Your goal should be to prevent errors from happening.

2. Have controls in place before your commission calculation

There are a few things you can do to help prevent commission errors from occurring.

Ensure your data is correct before running a calculation

Just like any calculation you want to make sure that your data is accurate. You should check for any missing transactions. Make sure you have the correct seller id and that they are credited to the right territory. Verify that your transactions have the correct date and that they are eligible to be compensated.

If your transaction doesn’t have a valid seller id on it. Then there is no point in running that through your commission calculation.

You can implement controls to catch these errors before they become an issue.

Test your plan rules 

Plans are changed frequently whether it be new products or increased quotas. Maybe you want to add an accelerator to motivate your reps to sell more.

You could accidentally program your plan wrong and pay your reps more than they should.

If your plan has a quarterly accelerator that starts when someone hits 110% of quota. But you program it to start at 100%. You could end up overpaying your sales reps.

Always test your plans before pushing them into production. Test normal scenarios as well as edge cases. Such as negative adjustments or cancellations. 

Make sure you test that your calculation runs and you get the correct payout.

Have controls in place before your payouts go to payroll

Another way to help prevent commission errors from going to payroll is to implement controls. Compare your payout amounts to past history. Budget and total amount of transactions that should be compensated.

You may find that your payouts are higher than normal or that a rep got zeroed out. All of which can be caught before your payouts go to payroll.

This won’t stop all commission errors from going to payroll but will help you identify them.

 3. Learn from your commission adjustments 

There are many metrics that companies can pull on their commission adjustments. How many adjustments did we process this month? What did they cost us? 

Here are some additional metrics you can measure.

How many of our payouts went through with no issues? What percent of adjustments are from previous known errors? How much money did we spend on commission adjustments? How many issues were found before going to payroll? How long did it take us to resolve the error?

All of these metrics will help you determine if you are learning from your mistakes. Or just processing more commission adjustments each month.

4. Everyone is responsible for preventing errors 

Sales Compensation shouldn’t be the only ones looking for ways to prevent commission errors. Sales Ops should ensure that they have the correct structure in place for sales credits. IT/Data can help ensure that feeds are sending over the correct information. Sales Comp can validate plan rules and that calculations are working. Finance can put controls in place to ensure that payouts are correct. Payroll should be paying the correct amounts to your employees.

Everyone needs to take ownership and make sure errors don’t occur. If there is an issue that continues to happen each month. Find who is responsible for that task and figure out a solution to stop it from happening.

Maybe territory changes are causing your team to have to calculate retro commissions. Work with sales ops to ensure they are changing territories with the correct effective dates.

Don’t just solve the issue at hand. Find a solution that will prevent the error from happening again.

Conclusion

We know that there will always be commission adjustments. Transactions get canceled and there are always unforeseen circumstances that can occur.

But we want to help you learn from your mistakes and prevent them from occurring. By using these tips you can help ensure that your commission statements are going out accurately the first time.

How much time is your team spending fixing errors that happened yesterday? Imagine what they could do if they weren’t.