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Summary
Organizations have long struggled to manage sales compensation and correlate it to business results. Variable compensation and incentives are two established ways to improve the outcomes of sales forces, but they do not always produce the results intended. One of the factors contributing to this is that many managers still use stand-alone spreadsheets and other documents not managed centrally. Using these can introduce errors that lead to frustration on the part of both management and sales staffs. Ventana Research recommends that finance, operations and sales management teams that are serious about effectively managing incentives re-examine their sales compensation processes.

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For years organizations have tried to manage incentives to make their sales forces more productive. Effective sales compensation management involves using information and technology to manage processes and people. But many sales organizations have not defined these processes clearly, and the clashing information often found in siloed documents and spreadsheets forces finance, operations and sales management groups to make judgment calls on their own. The result often is confusion about which information is right.

The demand for a simpler, more accurate method to manage sales compensation plans has intensified since the review of incentives and related processes has come under the scrutiny of Sarbanes-Oxley and similar regulations. At the same time, awareness has grown that improving sales management processes is a way to increase sales performance and make operations more efficient. Organizations have realized that gaining greater visibility into their overall sales pipeline and forecasts can help them determine whether incentives are working.

Correspondingly, the market for applications to support sales compensation processes has grown over the last two years, products’ capabilities have expanded and in general the software has become easier to install and deploy. The addition of analytics and the sales compensation-focused integration of modeling, rules, workflow, audit trails and reporting technologies have drastically improved the usefulness of these applications. Also important are improved support for sales activities, integration of these tools with existing sales force automation (SFA) applications and, in some applications, the availability of prebuilt templates for compensation and key performance indicators (KPIs), which can accelerate customization and deployment. In addition, some vendors now offer Web hosting of these applications in the form of software as a service (SaaS).

Assessment
To improve sales performance, companies need clearly defined sales compensation management processes and systems. But most organizations still use isolated spreadsheets and documents exchanged via e-mail. Organizations seeking a tighter linkage between compensation and performance in sales should consider dedicated sales performance management applications that complement their existing investments in sales force automation.