Using Technology to Manage and Optimize Incentive Compensation

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Using Technology to Manage and OptimizeIncentive Compensation

Using Technology to Manage and Optimize Incentive Compensation

Business leaders have long understood the importance of rewards and incentives – think of the carrot and stick analogy – as the key to motivating people and driving their business goals.

Leaders also understand the importance of managing risk, proactively protecting their organizations from downward turns that can affect their long-term performance or reputation.

Compensation management is essential for achieving alignment – the direct connection between the overall corporate goals and individual rewards. It is the structure of compensation plans – the framework of rewards and bonuses that incentivize staff to increase performance and reach company goals.

In today’s complex business environment, companies increasingly struggle to manage their plans across hundreds or thousands of product lines, customers, territories and employees. Consequently, companies from all industries are using Incentive Compensation Management (ICM) technology to manage and optimize their compensation plans.

The Business Environment and Incentive Compensation

Within companies, we find a range of different business units typically having a role overseeing the ICM program.

For instance, sales departments use compensation management to incent sales team performance. Human resource departments manage the development and administration of bonus structures, performance plans, individual goal-setting and management forecasting. Finance departments are responsible for creating reports for financial analysis, maintaining audit trails for compliance requirements.

While each of these departments has a role in managing ICM systems, finance departments, and ultimately the CFOs, are expected to play increasing leadership roles managing ICM in the future. These increasing responsibilities include designing, implementing and managing compensation plans.

Finance departments are increasing their involvement in the management of ICM because of their ability to improve decision-making, ensuring the company strikes the balance between increasing revenue and maintaining profitability. With an inherent sense of risk management, the CFO will bring a balanced perspective on the costs and benefits to be gained from the compensation strategy.

Who Leads Incentive Compensation Management (ICM)?

Using Technology to Manage and Optimize Incentive Compensation

Despite the emergence of advanced solutions for ICM, spreadsheets or homemade solutions continue to be widely used in all industries. Surveys have found that most companies still use a combination of spreadsheets, e-mail and manual processes to manage their compensation programs. However, these solutions were never designed to handle the complexities of modern ICM programs or deliver the flexibility that companies need to manage risk.

Spreadsheets have increased risk of errors. Studies have found that spreadsheets commonly have errors that, despite review among different users, go undetected and uncorrected. In 2013, a task force examining the losses incurred by Wall Street giant J.P. Morgan found that spreadsheets using manual calculations that were “error-prone” and “not easily scalable” were responsible for unmitigated risk and significant financial losses.

Spreadsheets also present other problems, including the “spreadsheet guru” problem, where only a single team member owns the document, understands how it works and can make changes to it. Similarly, in many companies, the only way for team members to do analysis is to submit queries to the spreadsheet guru, wait for the guru to conduct the analysis and submit the results.

These approaches are time-consuming, inefficient and unlikely to achieve alignment with corporate goals.

As a company continues growing, the organization will eventually reach the point when they must decide whether to forego the spreadsheet approach and invest in a technological solution.

Many companies are either at the decision point, or approaching it rapidly, about whether to make the investment. There are some sure signs that suggest when it is time to invest in a dependable and advanced solution.

Use of Spreadsheets

When to Adopt the Technology

Calculating sales incentives and distributing payments has become a serious administrative burden

The distribution network is large and a considerable number of stakeholders receive and depend upon your analysis

Calculations have become very complex, reducing speed and accuracy

Using Technology to Manage and Optimize Incentive Compensation

Using Technology to Optimize Incentive Compensation

Technological solutions have the potential to move a company’s compensation plan to the next level – ensuring alignment, accuracy, transparency, scalability and speed.

ICM solutions offer some notable benefits, including:

These indicators can help finance executives assess whether it is time to consider an advanced ICM solution to automate their compensation program.

Adopting a new technology will often produce some resistance to change among the staff. However, ICM has so many benefits – increased visibility, ongoing tracking against goals, detailed statements, access to reporting – that the change process will quickly yield a positive response from stakeholders.

Transparency of calculations and payouts has become an issue, fostering problems of trust or motivation among sales staff. Sales staff who lose trust in their compensation plans spend significant time “shadow accounting” rather than focusing on sales strategies

There is an inability to align individual or team goals with overall corporate objectives

Managers receive a significant number of inquiries from sales team, particularly about a lack of transparency or disputes about the payment process

The company’s IT costs to manage the program have become burdensome

ENHANCED REPORTING

ICM enhances management’s role by providing up-to-date insightful reports on sales activity, customer accounts and territory performance.

Using Technology to Manage and Optimize Incentive Compensation

IMPROVED ACCESS

Unlike spreadsheets, ICM solutions are widely accessible to all staff and can provide information and reports to inform decision-making in a range of business units.

INCREASED ACCURACY

Studies have found that most manual systems overpay up to 8 percent. For most companies, an 8 percent difference in payouts is a significant impact on its overall financial health.

ENHANCED TRANSPARENCY

Unlike spreadsheets, the compensation calculations are open to team members who can see precisely how their payouts are calculated.

INCREASED SCALABILITY

As the company grows, the ICM solution expands to accommodate additional product lines, team members, customers and territories.

HIGHER SPEED

ICM solutions are automated. Calculations are done automatically as data is received and inputted.

Overall, ICM solutions are the best approach for aligning compensation incentives with overall corporate goals.

Using Technology to Manage and Optimize Incentive Compensation

Building for the Future

As the business landscape continues becoming more complex with faster transactions, more product offerings and a more competitive environment, the importance of driving incentives and managing risk cannot be overstated. Companies must also seek efficiencies and leverage technology to increase their ability to harness resources towards its goals. ICM is a key tool in these efforts, the benefits allow for greater future potential for profitability and business success.

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About Iconixx Iconixx is a total solution provider for compensation management. The Iconixx product suite – Iconixx Sales, Iconixx Incentive and Iconixx Merit –makes the company a one-stop resource for sales, bonus and salary compensation solutions. Our cost-effective, Cloud-based solutions deliver incentives to the entire workforce for businesses of all sizes. Drawing on over 15 years of experience, Iconixx also partners with clients to accelerate their business growth through actionable intelligence. Whether it’s using Iconixx technology or leveraging a client’s current investment, Iconixx’s expertise can drive ef�ciencies for their compensation environment.