How To Improve Sales Compensation Process

So You Think Your Sales Compensation Administration is Working Well?

According to the 2012 Sales Performance and Technology Survey less than half of the companies surveyed reported 95% accuracy (or better) in their commission payments. So, if at least half of the companies surveyed have an accuracy rate of less than 95%, what is going wrong and why?

How To Avoid Sales Compensation Errors

In our article 7 Ways To Avoid Sales Incentive Payment Errors we talked about the significant costs of getting the sales incentive payments wrong including:

  • The business losing money from ‘leakage’.
  • Cranky salespeople not paid as they expect to be.
  • Administrators spending hours reworking the numbers to find and correct the error.

We recommended a 7-step checklist to avoid incentive payment errors in our article. To recap:

  1. Run smoke tests on total payable
  2. Run a target SUM check
  3. Run a sales SUM check
  4. Run a participant check
  5. Run your numbers through a broader approval process
  6. Send a communication to all managers and attach their reports
  7. Send a communication to all participants and attach their reports

Completing these steps should improve the accuracy of your payments. But how do you continuously improve your sales compensation administration process to reduce error rates? We recommend the following continuous improvement process:

Five Step Sales Compensation Continuous Improvement Process

  1. Tally how many errors have been reported by sales the last 12 months (pre and post approval).
  2. Benchmark your error rate. If you have zero errors, go back and recheck. According to the survey, only 28% of companies report an accuracy rate of 99% or better so no errors probably means you’re not picking them up. Set a target error rate that you would like to achieve so you can measure your progress as you make process improvements.
  3. Integrate feedback loops (e.g. dispute resolution) into your sales compensation process. Disputes around sales compensation figures should be recorded and qualitative feedback should be built into your process improvement.
  4. Run an annual audit. Go back and review the reports you submitted to payroll, highlight the errors and understand why they were made. Improve your administrative processes based on your audit findings.
  5. Review the compensation cost of sale trend year on year. Is it going up down or is it steady? Review and investigate any irregularities and tighten up your processes.

Follow these steps and you will reduce your error rate year on year. This will lead to happier sales people, less money lost from the business and most importantly, less rework for you!

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