Is Your Sales Compensation Function Built for Accuracy or Just Built to Process Commissions?

To accurately pay out commissions you need good plans, data, business rules, processes and accountability throughout the Sales Compensation process. 

Companies will spend money on a commission management tool, reconciliations and controls around approving payouts. But still see issues with commission payouts. Adjustments to payouts, sellers disputing commissions and needing to intervene in the payout process.

This is because we look at commission controls as individual steps.

Plans are created, setup on a commission platform, transaction data is processed and passed off to Finance and Payroll to approve payouts.

There are many steps in between where things can go wrong. We just don’t see them until payout. 

By thinking about commission controls we need to think broader. Think about a Sales Compensation operating model. 

1. Plan Design 

As mentioned earlier there are many moving parts to a successful commission payout process. Plan design plays a huge role in that.

Companies don’t always realize how much problems can arise from poorly created plans. Vague rules on eligibility, complicated accelerators or too many exceptions will cause you headaches when calculating commissions.

Lets say a company creates a plan around a new product. There are 3 business units that will participate. Each one may view eligibility and how the plan is credited differently. Once these plans are sent to your team to setup on the commission platform you will have issues paying out those plans.

By implementing some controls around plan design you can prevent these issues from occurring. Create guidelines that all plans should follow. Make sure you have documentation on the business requirements and review with stakeholders. Get sign off from business leaders before launching the plan.

Ensure that your plans are clear and can be executed and tracked.

2. Data 

Your commission platform can only calculate what you give it. So if you have bad data going in your payouts will be wrong.

Make sure you have good data coming into your commission platform. CRM, ERP, order entry etc. You want to make sure that the data that your sending is accurate.

Maybe your sales person books $200k in business. Your CRM is showing the correct info but when that transaction gets sent to your commission platform its using the wrong seller ID. Your commission platform will payout that commission to the wrong person.

Ensure that you have data controls in place to validate that you’re sending the right data. This could include territory, eligibility of seller, dates that transactions occurred and more.

Make sure you are checking that your transactions are complete and accurate.

3. Crediting Sales 

Crediting sales can play a big role in commission payouts. Whether its changing territories, splitting commissions or applying overlays to sellers. All of these things can impact commission payouts.

You want to make sure that you have proper rules in place around how to credit sales. Maybe you have a million dollar deal with 2 sellers and a overlay. Make sure you know how that is going to be credited.

By having processes in place around how you credit sales you will have better payouts.

Test your calculations to make sure that they are working properly. Test against all scenarios that you plan to have on your commission plan.

4. Commission Approval & Payroll 

Once you’ve calculated your commissions you need to get them to payroll. You should have controls in place around your commission approval process.

If your paying out $10M in incentives per quarter make sure that Finance has a grasp on what is happening. Know why your payouts are higher or lower then normal.

Have a process in place to know who is reviewing your commissions. Who has the ability to approve exceptions over a certain dollar amount. Reconcile your approved payouts to payroll. Have controls around your accrual and payout of incentive expense.

Use a maker/checker process and have proper documentation of approvals.

Always follow your companies policy and payroll requirements when correcting commissions.

5. Own the Process 

Everyone that is involved in the commission process needs to know what they are responsible for. From Sales Ops, Sales Comp, Finance, HR and even IT and Payroll.

Sales Ops may own the territory and crediting process. Sales Comp owns the plans and commission calculations. IT can help ensure that your feeds and data are getting to your platform. Finance can help ensure your numbers are correct before they get sent to payroll.

Create a matrix of responsibilities and know who to escalate to if something isn’t right.

Everyone needs to own their piece of the process.

6. Know Your Numbers 

Don’t just track how quickly you can run commission statements. You want to know how accurate your payouts are.

What % of your payouts did you get right the first time? How many adjustments did you have to make after your calculations were done? How many plan issues did you find while testing? How long does it take to resolve commission issues? Are you spending too much time working in excel to make sure your payouts are correct? Can you reconcile your payouts to payroll and incentive expense?

If your company pays out $40M a year in incentive comp and continues to have issues with payouts. Maybe its time to look at your processes. Where are you failing and what can you do to improve?

7. Final Thoughts 

If you want to have a great Sales Compensation team you need to look at the whole process. Don’t fix the issue at payroll or add more controls to your approval process. Build out your operating model around all of the pieces I mentioned above.

By doing this you will decrease your commission issues. Allow your Finance team to be more productive and increase trust from your sellers.

What is your Sales Compensation team currently doing to ensure that you are accurately paying out commissions?