It is generally known that motivated salespeople are driven to sell more. The challenge is how to consistently create and sustain an environment that drives such motivation while also achieving your strategic and sales targets? The answer can be complex, but it has strong ties to your incentive compensation practice and its administration.
In this blog, we discuss the importance of variable-pay programs and the role of Incentive Compensation Management (ICM) solutions in helping today’s enterprise gain control, reward employees, and achieve their bottom lines.
Types of Compensation Offerings
In today’s competitive market, base salaries are not sufficient to attract top talent. Competition is fierce and employees often expect additional perks such as initial sign-on, ongoing performance bonuses, travel perks, and much more. This is particularly evident in the technology space where it has become a norm.
The below is a list of different types of compensation offerings offered to employees:
- Direct Compensation: Covers cash-payments to employees such as hourly wages, salaries, bonuses, and commissions. This is often subdivided into base-pay: which covers hourly wages and salary payments, and variable-pay: which covers commissions and bonus payments.
- Indirect Compensation: Represents a financial incentive not provided to employees as a cash payment such as 401(k) contributions, stock options, profit-sharing, and health benefits.
- Non-Financial Compensation: A form of payment that does not involve cash, such as flexible hours, work from home opportunities, and recognition programs.
While all forms are equally important and relevant, it is variable-pay programs that sales organizations typically exploit to motivate employees, reward the right behaviours and achievements, and guide sales to meet organizational targets. As objectives change, incentive-based pay programs and targets can be adjusted to drive behaviour and align with corporate goals.
Benefits of variable incentive compensation programs
In today’s information-driven age, both companies and salespeople are dependent on data and sales metrics to satisfy their needs – this is especially true with variable-pay programs where performance metrics are directly related to compensation amounts. Organizations use data metrics to define incentive plans and sales targets aligned with their objectives. Management uses data metrics to define success criteria and performance evaluations of team members. Salespeople use data metrics to validate their achievement of sales goals and bonus earnings. Everyone benefits by seeing how their contribution and production affect the company’s bottom-line performance and profitability.
Incentive Compensation Management solutions such as Varicent SPM provide sales organizations with a suite of solutions that benefit all stakeholders. From automation and auditing solutions for the enterprise to powerful reporting and analytics solutions for management and salespeople, ICM solutions provide a platform for variable-pay programs to flourish. The below are direct benefits of variable-pay programs when coupled with ICM solutions.
Increase in productivity
Variable compensation is all about a pay-for-performance culture. The harder sales reps work, the higher their productivity, the more compensation they earn. It is a simple and great motivator to get the best out of salespeople. The challenge here is to provide accurate and up-to-date metrics for salespeople to know their current position with respect to agreed-upon targets.
ICM solutions are an excellent solution that provides data-rich reports and dashboards for your sales teams. With direct insight into their sales performance, goal achievement, pipeline opportunities, salespeople can easily identify where improvement is needed, what to do to achieve higher performance tiers, and better measure their impact on the company. Common ICM outputs include Compensation Statements, Performance Dashboards, and Pipeline Summaries.
Encourage teamwork and collaboration
Group targets or team-based incentive plans are designed to encourage and reward a collective effort. This is a common application in the insurance or financial investment industry. Collaboration often leads to creative thinking and innovation amongst team members and therefore presents additional values to an enterprise.
Effective collaboration is built on trust and transparency between group members. How are the territories split, who covers which accounts, etc. This is where ICM solutions are the purpose-built drivers for effective communications, added transparency, and enablers of trusted relationships. Individuals form stronger bonds and have less desire to work the system when rewards primarily come from working together in a trusted relationship.
Improve employee morale
Where there’s doubt over the accuracy of commissions or other incentives, the lack of trust directly impacts an employee’s morale and trust in the organization. This uncertainty over payment metrics can lead to a salesperson’s frustration and dissatisfaction, and lengthy payroll processes with many disputes.
ICM solutions help companies reduce time spent on shadow accounting by giving sales teams more insight into their performance and compensation metrics. Process transparency and powerful reports with up-to-date sales metrics provide visibility into performance and compensation metrics that employees want and need, and thus boost their confidence and morale.
Attract and retain top talent
According to research, enterprises are using variable pay programs to retain top talent in today’s highly competitive markets. The more employees feel respected given an organization’s fair and lucrative compensation plans, the lower the employee churn risk. In other words, when a team of great sellers feel confident in the incentive compensation program they are part of, they are more likely to cooperate with others and be less tempted to search for other opportunities.
In addition to providing just the standard compensation statements, ICM solutions further enable salespeople with informative reports and dashboards that guide their understanding of their compensation plans, achievement of sales targets, and performance with relation to peers and standards for their role. Common outputs include compensation plan documents and ranking reports. With a full view into what’s going well, where development is needed, and what’s required to hit that next tier, salespeople are even more informed and motivated to do better and earn their performance bonuses.
Promote the right behaviour
With the right mix of incentives, corporations can establish a culture of employees who sell the right products at the right time for the right price. From SPIF programs to annual bonuses, accelerators, or performance baselines, compensation plans on their own can support this, but only to an extent. A company’s challenge is to determine the right blend of these plan features for the right territory and right salespeople!
To achieve better results, ICM solutions provide flexible solutions designed to help organizations better understand their impact with modelling and reporting functionality. With changing economic conditions, it’s important to be nimble and implement directional changes that guide the organization forward. With Scenario modelling, compensation administrators can better understand anticipated plan changes on their salespeople. With forecasting and accrual reports, organizations are better equipped to assess cadence and achievement of targets. With the right tools, you can promote the right behaviour and ensure no costly mistakes are made.
Conclusion
Variable-pay programs provide numerous advantages to any sales organization. However, they can also pose significant challenges depending on the number of employees and the number of compensation plans managed. To mitigate the risk of overpayments and underpayments, and to improve accuracy and efficiencies on commissions management, organizations are moving away from spreadsheets or homegrown systems towards reputable ICM solutions to manage, automate, and streamline their incentive compensation management processes.
Want to learn more about incentive compensation management solutions and how they can improve your sales performance processes? Contact Us.
Jonathan Menezes
Services Director
Omid Mehrzad
Managing Partner
