How to Unlock Strategic Incentive Compensation Management

When it comes to managing performance-based incentive programs, today’s compensation professionals are struggling to simply keep the lights on. In fact, fewer than half (46%) of compensation leaders say they calculate commissions in an accurate and timely manner. 

CaptivateIQ’s State of Incentive Compensation Management (ICM) Report surveyed 200 U.S. professionals working for B2B companies with a sales team in order to understand the challenges facing compensation professionals and how successful organizations are addressing and overcoming these obstacles. 

The survey revealed that many organizations are still mired by cumbersome, manual processes. 

• Compensation leaders are spending an average of 49 hours per month completing necessary manual tasks. 
• Only 43% of compensation teams have automated end-to-end commissions. 

These repetitive processes come with steep costs. In addition to risking the accuracy and timeliness of incentive payouts, manual tasks prevent strategic thinking and analysis from occurring. Performance-based incentive programs are inherently strategic. Yet, if compensation teams are wasting precious time on execution, they quickly lose sight of the regular alignment and realignment that needs to happen between the company’s incentives and objectives. 

Where Compensation Teams Go Wrong: Practical Examples 

With time and resources in short supply, table stake assessments are often overlooked or forgotten, such as: 

• Performance analysis at the rep, team, and territory levels. Despite the time committed to designing compensation plans, 73% of compensation professionals are only auditing individual and team-level performance on an ad hoc basis or not at all. Further, a mere 24% of compensation leaders say they provide real-time transparency to sellers about their performance to boost motivation. This also limits visibility to key stakeholders across the company, making it difficult for sellers and go-to-market (GTM) teams to understand the reality of sales’ performance. 
• Understanding the ROI of incentive programs. Further, 62% of leaders are not regularly looking at the value of compensation plans. Especially as compensation organizations increase in complexity—with 44% of teams managing 26-50 different plan types—it’s important for companies to audit the ROI to ensure plans are productive and that sellers are focused on the right priorities across all compensation plans. 
• Regular evaluations of plan effectiveness and performance. Finally, 68% of leaders say they only report on plan performance on an ad hoc basis or not at all. Without this review, it’s near impossible for compensation teams to confidently know whether their incentive program is effective in meeting business objectives. 

Example #1: Disparities In Commission Rates Among Sales Reps

In the example above, an organization has a target commission rate of 10% for all new business deals closed. Typically, the finance team will look at the yellow line and feel good that they reached their goal of a 10% commission rate. 

However, this overlooks the fact that two of the five sellers are significantly off target: one seller is earning a 15% commission rate and another is earning a 7% rate. That isn't to say that the incentive plan is not working as intended; but, ultimately, if the commission amount isn't aligned with the plan, it's going to show up somewhere—whether it's extra burn or an unknown to the business.

Example #2: Misalignment Between Quota Attainment And Payout Levels

Similarly, Monica, Aaron and Kyle are paid at a certain percent of their on-target variable (OTV). Yet, their quota attainment as a measure of their performance is far below what they’re getting paid.

Typically, those two metrics should be in line with each other. Many teams are often surprised by components of a commission plan that haven't been considered holistically, like spiffs, accelerators or elements that are inflating how much a person can earn on a given deal. 

While these examples don’t necessarily suggest there is a problem, they should start a healthy debate in answering the question: is the incentive plan working or are there adjustments that we need to make?

Key Trends to Unlock Strategic and Effective ICM Programs

Compensation professionals need to use automation, technology, and program design to streamline manual processes and facilitate more strategic incentive compensation programs. 

Here’s how successful compensation teams are optimizing their programs. 

Streamlining to Unlock Strategic Thinking

Effective teams are auditing their processes for areas they can improve with automation and technology. For example, many compensation teams are replacing inflexible, pen-and-paper processes with software that streamlines compensation management, reduces commission cycle timelines, and makes it easy to adjust plans as business objectives change. 

Tracking and Analyzing Effectiveness

In addition to identifying the right key performance indicators (KPIs) that align with business objectives, these organizations also ensure that they’re monitoring and analyzing how performance is mapping against these KPIs in real-time. Their leaders frequently review performance and make necessary adjustments to keep sellers on track in meeting their goals.

Elevating the Perception of Incentive Teams and Adjusting Ownership of Compensation Planning

As compensation leaders position their teams more strategically—by demonstrating impact on growth and ROI cost savings—they’re able to bring more visibility and authority to the function. 

Some companies find value in shifting ownership of the compensation program from sales to HR. Historically, RevOps or SalesOps teams needed to manage incentive programs, given their expertise in calculation tools like Excel. Now, automated solutions like Captivate IQ are making it possible for HR teams to manage compensation without unwanted bias, avoiding the potential conflict of interest that comes with sales-managed programs. 

Exploring Incentive Plans for Non-Sales Teams

As companies have approached compensation plans more strategically, they’ve also broadened participation to foster company-wide alignment and efficiency. 

For example, non-sales departments like customer success, professional services, and marketing are adopting incentive plans, ensuring the entire team is aligned with company objectives and motivated to reach their goals. According to an Alexander Group report, 38% of organizations are changing which jobs are eligible for an incentive compensation plan, adding more roles in sales, sales management, customer success, sales engineers, and marketers. 

In fact, highly-aligned organizations working toward the same objectives and sharing the same company mission are 72% more profitable—and they grow revenue 58% faster than their unaligned peers. And, 81% of employees want a pay structure that includes some degree of commissions—encouraging organizations to leverage compensation plans as an effective motivational tool for ambitious employees. 

Conclusion 

Transforming tactical execution into a strategic advantage requires a deliberate shift in how compensation teams approach their processes. By embracing automation, leveraging technology, and continuously evaluating the effectiveness of their program, organizations can ensure sales teams are driving toward the right objectives. 

The compensation teams that innovate and adapt will not only optimize their incentive programs but also enhance organizational growth, profitability, and employee satisfaction.