July 13 by Sarah Van Caster
I recently came across an article published in the HR Gazette that took an interesting approach to the question “who owns incentive compensation plans”? The author, David Johnston, argued against the common viewpoint that a single department, typically human resources, owns, designs and communicates incentive programs. Instead, he believes, to be successful, management of incentive programs needs to be a joint effort across the business. The following is a summary of who Johnston considers are the critical players, and their responsibilities.
Critical Players in Incentive Compensation
Senior Management – responsibility for the vision, direction and strategy related to incentive compensation belongs to the leadership team. Senior management creates the business and sales strategies to which incentive compensation must be aligned.
Human Resources – HR owns the design process, assessment of current plans and competitiveness requirements. It is their responsibility to coordinate and manage the design and development process to ensure plans are fair and equitable, on budget, and competitive with other organizations’ sales incentives.
Finance – costing analysis, target setting and program audit fall into the hands of the Finance team. After program design, but before implementation, Finance must complete a cost analysis to ensure plan payouts are appropriate.
Sales Operations/Shared Services – performance tracking and reporting are key tasks typically done by the Sales Ops and/or IT teams, depending on available technology. This group must ensure performance results are logged appropriately and credits and splits are accurate. They are also responsible for data quality and ensuring management and participants have all necessary information.
Everyone – communication and feedback is a requirement of all groups. A full communications strategy must start during development and run as an on-going effort throughout the process. Poorly communicated plan rollouts can cause confusion and discouragement. Clear communication across all stakeholders is the single most important element of success.
This is relevant insight for every company. Although the departments and resources may not mirror this list exactly, every organization should be aware of these responsibilities and ensure there are individuals committed to owning these processes.
Responsibilities of the Sales Team in Building Incentive Compensation Plans
If I had to add one more department to the list, it would be the Sales organization, specifically the Sales leadership team. Although Sales often just receives the output (in the form of commissions and bonuses) of the incentive compensation process, the more proactive they can be, the better the chances for program success. Sales teams tend to struggle with trying to decipher overly complicated plans and feeling demotivated by delayed or disconnect rewards. They often have limited visibility to performance and feel frustrated by unattainable (at least seemingly) quotas.
Generally, sales leadership’s goal is to inspire performance and drive results. To do this, leadership needs to align the sales behaviors of their team(s) with organizational objectives set by senior management. The only way to consistently align sales behaviors is through incentive compensation programs. This makes it absolutely critical for sales leaders to be involved early in the program development process and provide constant feedback to all stakeholders on how the sales team is reacting to the incentive compensation plans. Johnston concludes his article with a veracious emphasis on communication. He argues that, “…an average program well communicated will do better than an outstanding program poorly communicated.” For the communication loop to be effective, Sales must be an active participant.
The Role of Technology in Incentive Compensation Design
The article also acknowledges the right technology can play a huge role in successful incentive programs. “New technology to support incentive compensation administration makes the performance tracking and measurement much more efficient.” While I agree with this statement, the impact of the right incentive compensation management (ICM) solution can support more than program administration. The 3 main benefits of the Apttus ICM solution include:
- Improve go-to-market execution by aligning sales behaviors (and incentive plans) with organizational objectives set by the leadership team
- Increase operational efficiencies by decreasing manual errors, consolidating systems and processes and increasing administrative efficiencies
- Drive revenue and margin by motivating salespeople with visibility to performance, attainment, earnings and payments
Successful incentive compensation management includes the right people (multiple stakeholders across the business), processes (defined roles and responsibilities) and technology (incentive compensation solution). Avoid the common pitfalls we see all too often by establishing ownership early in this process and investing in the right solutions to enable all stakeholders to be effective. When implemented effectively, sales incentives can be a powerful force for driving behavior and achieving results.