Description
Compensation management is a general policy, implemented in conjunction with specialized software, designed to help an organization maximize the returns on available talent. The ultimate goal is to reward the right people to the greatest extent for the most relevant reasons.
© 2013 IBM Corporation © 2013 IBM Corporation
Automate incentive processes to align strategy, reduce errors
and improve compliance
Incentive compensation management
Steve Darcy, Incentive Compensation Management
6 June 2013
© 2013 IBM Corporation
Four key questions answered today
i
iv
iii
What is incentive compensation management (ICM)?
What have other companies done to be successful?
Why should the office of finance care?
ii
What impact does it have on the organization?
© 2013 IBM Corporation
Organizational alignment?
Customer relationship
management (CRM)
Enterprise resource
planning (ERP)
Industry data Industry data
Human resources
information system
(HRIS)
Customers have
stockpiled based on
discounts. This product
is flat at best—
USD10 million.
We have committed 30
percent growth to the
board, so the number is
USD13 million.
We have 10 percent of
a USD100 million
marketplace growing to
USD150 million. We
should be able to reach
USD15 million.
We have 10 reps, each
with USD1 million quotas.
We can onboard two new
reps, giving us USD12
million in capacity.
T
a
r
g
e
t
s
O
p
p
o
r
t
u
n
i
t
y
C
a
p
a
c
i
t
y
P
o
t
e
n
t
i
a
l
Incentive
compensation
management
© 2013 IBM Corporation
Incentive compensation management is hard
Get the checks out on time
Make sure they’re accurate
But also:
– Be flexible and nimble for changing priorities
– Manage complex assignments
– Set accurate goals and targets
– Generate enthusiasm
– Deliver timely and insightful reports
– Resolve questions and disputes
– Do it with less headcount
© 2013 IBM Corporation
Common challenges
Errors
Transparency
Shadow accounting
Long cycle times
Audit and compliance
Labor intensive
Inflexible
Installed systems
© 2013 IBM Corporation
© 2013 IBM Corporation
i
iv
iii
What is incentive compensation management (ICM)?
What have other companies done to be successful?
Why should the office of finance care?
ii
What impact does it have on the organization?
Agenda
© 2013 IBM Corporation
Why companies adopt ICM technology
Reduce errors
Shorten cycle times
Replace technology
Enhance decisions
Increase flexibility
Improve modeling
and costing
Internal audit
Legislation
Too reliant on a
couple of people
Risk
reduction
Efficiency and
accuracy
Business
enablement
© 2013 IBM Corporation
Two axioms
1
2
Sales incentive compensation is the link
between corporate strategy and customer-
facing activity
This business process is one of the lowest-
hanging fruits for savings and efficiencies
© 2013 IBM Corporation
Good incentive design reflects business and sales priorities
Territory definitions, account assignments,
plan measures, rates, crediting rules and more
Which
products?
Which
customers?
Which
roles?
Which
message?
© 2013 IBM Corporation
i
iv
iii
What is incentive compensation management (ICM)?
What have other companies done to be successful?
Why should the office of finance care?
ii
What impact does it have on the organization?
Agenda
© 2013 IBM Corporation
Incenting based on controllable profits
“A lot of things that go into that profit margin
are outside of the territory manager’s
control …such as the cost of raw materials.”
“But they can have an immediate impact on
profitability by focusing on pricing.”
“Now that we have moved to a net-based
sales plan, a territory manager can see a
direct relationship between his behavior and
the amount of his check.”
—Project manager for commissions
U.S.-based manufacturer of flooring products
© 2013 IBM Corporation
Align incentives with corporate goals
Retail division of a Canadian bank
Offering a bonus for bundling multiple key
products together (for example, mortgage
along with insurance)
Recognizing cross-selling new product
families to their customers (such as a first
long-term debt product for that customer or
household)
Rewarding employees for referring
customers to another employee or business
unit
© 2013 IBM Corporation
Two axioms
1
2
Sales incentive compensation is the link
between corporate strategy and customer-
facing activity
This business process is one of the lowest-
hanging fruits for savings and efficiencies
© 2013 IBM Corporation
Slide
How do companies manage today?
Spreadsheets
(61%)
Home grown
(19%)
Commercial
software
(8%)
Manual
(10%)
Unknown
(2%)
Source: CSO Insights, 2012 Sales Compensation and Performance Management Key Trends Analysis, Jim Dickie and Barry Trailer, 2012.
© 2013 IBM Corporation
An all-too-common scenario
© 2013 IBM Corporation
90% 40% 50%
{
Organizations adopting
sales performance
management (SPM)
technologies
Reduce errors
by more than
Reduce processing
times by more than
Reduce IT/admin
staffing by more than
Getting results
Source: Gartner, MarketScope for Sales Incentive Compensation Management Software, Michael Dunne, March 5, 2010.
© 2013 IBM Corporation
Payout process reduced from
2 weeks to 2 days
Getting results
© 2013 IBM Corporation
Centralized payout administration from 30 to 3 employees for North
and South America
Getting results
© 2013 IBM Corporation
Focus sellers on selling
“When people didn’t understand what
their achievement was, we got pushback
on everything about our plan.
“By having transparency into the system
we don’t have to worry about them
saying, ‘Wait—I don’t get this.’”
“…spend more time selling”
—Steve Love, CFO
© 2013 IBM Corporation
i
iv
iii
What is incentive compensation management (ICM)?
What have other companies done to be successful?
Why should the office of finance care?
ii
What impact does it have on the organization?
Agenda
© 2013 IBM Corporation © 2013 IBM Corporation
Show me the
sales incentive plan …
and I’ll show you the company’s
business priorities.
© 2013 IBM Corporation
10.7% 11.5
%
{
Sales compensation spend as a
percentage of annual revenues is up
to 11.5%from 10.7%
Sales compensation spend today
Source: TBD
© 2013 IBM Corporation
What is important to sales?
Increase revenue
72%
Improve efficiency of sales
57%
Grow business in net new customers
56%
Align salesforce to business goals
56%
Increase selling to customers
47%
Source: Ventana Research, Sales on the Cutting Edge: Improving the Business of Sales to Maximize Revenue, December 2011.
© 2013 IBM Corporation
What role does finance play?
Wants access to information
35%
Influences and wants to improve sales
33%
Sponsors and funds investment
28%
Is not involved
22%
Don’t know
17%
Source: Ventana Research, Sales on the Cutting Edge: Improving the Business of Sales to Maximize Revenue, December 2011.
© 2013 IBM Corporation
Finance perspective: areas for improvement
More sophisticated selling behaviors
61%
Improved collaboration among sales and others
38%
Better reporting for forecasting and decision making
37%
Improved sales efficiency
35%
Increased use of modeling and analytics
30%
Improved collaboration among sales staff
26%
More responsive/flexible sales behavior
19%
Increased sales head count
10%
Source: CFO Research Services in collaboration with Varicent Software Incorporated (now an IBM Company), Managing Sales Incentive Compensation Amid Uncertainty, March 2010.
© 2013 IBM Corporation
Finance perspective: barriers to improvement
Organizational resistance among sales staff
29%
Lack of time, attention and resources
28%
Lack of collaboration among departments
27%
Lack of standardized approach to incentive
comp
22%
Inadequate technology systems
22%
Highly complex incentive plans
21%
Lack of tools and structures for plan design
20%
No clear business benefits
19%
Lack of visibility into comp plan performance
16%
Source: CFO Research Services in collaboration with Varicent Software Incorporated (now an IBM Company), Managing Sales Incentive Compensation Amid Uncertainty, March 2010.
© 2013 IBM Corporation
Critical lesson learned: align sales and finance priorities
Sales
Increase revenue
Reduce complexity
Decrease cycle times
Reduce errors
More analytics
More time to sell
Finance
Improve margins
Increase sophistication
More regulation
Information faster
Reduce IT/admin costs
More self-service
© 2013 IBM Corporation
Clear governance process and calendar
Accurate and timely payments
Easy statement and transaction access
Comprehensive and user-friendly documentation
“Baseline” management reports
Auditing and tracking controls
Reasonable system change timeline
Disputes resolved in timely manner
2013 table stakes
© 2013 IBM Corporation
Coverage model and role deployment
Sales priority linkages to the field
Insight to sales effectiveness
Incentive and sales forecasts
Program impact and modeling
Error and dispute reduction
Compensation process scalability
Flexibility and resource optimization
ICM and quota cycle time decreases
Auditing and compliance tracking
Program governance
Program and process reporting
1
2
3
4
Grow, retain and
satisfy customers
Manage risk, fraud and
regulatory compliance
Increase operational
efficiency
Transform financial
processes
Smarter
analytics
IBM Cognos
®
Incentive Compensation Management software drives
key imperatives
© 2013 IBM Corporation
Establish ICM guiding principles
Survey the field—executives, managers and plan participants
Conduct self-assessment and create ICM gap analysis
Create alternative paths forward
– Technology dependent
– Technology independent
Create the case for change
– Alignment/aspiration outcomes
– Hard dollar/efficiency outcomes
– Regulatory and compliance
Find a field champion
Call to action
© 2013 IBM Corporation
To learn morehttp://www.varicent.com/cfo/index.asp
© 2013 IBM Corporation
IBM Corporation 2013
IBM, the IBM logo, and ibm.com are trademarks or registered trademarks of International Business Machines Corporation in
the United States, other countries, or both. If these and other IBM trademarked terms are marked on their first occurrence in
this information with the appropriate symbol (
®
or
™
), these symbols indicate U.S. registered or common law trademarks
owned by IBM at the time this information was published. Such trademarks may also be registered or common law
trademarks in other countries. A current list of IBM trademarks is available on the Web at “Copyright and trademark
information” at www.ibm.com/legal/copytrade.shtml.
Other company, product, and service names may be trademarks or service marks of others.
References in this publication to IBM products or services do not imply that IBM intends to make them available in all
countries in which IBM operates.
Trademarks and notes
doc_850812610.pdf
Compensation management is a general policy, implemented in conjunction with specialized software, designed to help an organization maximize the returns on available talent. The ultimate goal is to reward the right people to the greatest extent for the most relevant reasons.
© 2013 IBM Corporation © 2013 IBM Corporation
Automate incentive processes to align strategy, reduce errors
and improve compliance
Incentive compensation management
Steve Darcy, Incentive Compensation Management
6 June 2013
© 2013 IBM Corporation
Four key questions answered today
i
iv
iii
What is incentive compensation management (ICM)?
What have other companies done to be successful?
Why should the office of finance care?
ii
What impact does it have on the organization?
© 2013 IBM Corporation
Organizational alignment?
Customer relationship
management (CRM)
Enterprise resource
planning (ERP)
Industry data Industry data
Human resources
information system
(HRIS)
Customers have
stockpiled based on
discounts. This product
is flat at best—
USD10 million.
We have committed 30
percent growth to the
board, so the number is
USD13 million.
We have 10 percent of
a USD100 million
marketplace growing to
USD150 million. We
should be able to reach
USD15 million.
We have 10 reps, each
with USD1 million quotas.
We can onboard two new
reps, giving us USD12
million in capacity.
T
a
r
g
e
t
s
O
p
p
o
r
t
u
n
i
t
y
C
a
p
a
c
i
t
y
P
o
t
e
n
t
i
a
l
Incentive
compensation
management
© 2013 IBM Corporation
Incentive compensation management is hard
Get the checks out on time
Make sure they’re accurate
But also:
– Be flexible and nimble for changing priorities
– Manage complex assignments
– Set accurate goals and targets
– Generate enthusiasm
– Deliver timely and insightful reports
– Resolve questions and disputes
– Do it with less headcount
© 2013 IBM Corporation
Common challenges
Errors
Transparency
Shadow accounting
Long cycle times
Audit and compliance
Labor intensive
Inflexible
Installed systems
© 2013 IBM Corporation
© 2013 IBM Corporation
i
iv
iii
What is incentive compensation management (ICM)?
What have other companies done to be successful?
Why should the office of finance care?
ii
What impact does it have on the organization?
Agenda
© 2013 IBM Corporation
Why companies adopt ICM technology
Reduce errors
Shorten cycle times
Replace technology
Enhance decisions
Increase flexibility
Improve modeling
and costing
Internal audit
Legislation
Too reliant on a
couple of people
Risk
reduction
Efficiency and
accuracy
Business
enablement
© 2013 IBM Corporation
Two axioms
1
2
Sales incentive compensation is the link
between corporate strategy and customer-
facing activity
This business process is one of the lowest-
hanging fruits for savings and efficiencies
© 2013 IBM Corporation
Good incentive design reflects business and sales priorities
Territory definitions, account assignments,
plan measures, rates, crediting rules and more
Which
products?
Which
customers?
Which
roles?
Which
message?
© 2013 IBM Corporation
i
iv
iii
What is incentive compensation management (ICM)?
What have other companies done to be successful?
Why should the office of finance care?
ii
What impact does it have on the organization?
Agenda
© 2013 IBM Corporation
Incenting based on controllable profits
“A lot of things that go into that profit margin
are outside of the territory manager’s
control …such as the cost of raw materials.”
“But they can have an immediate impact on
profitability by focusing on pricing.”
“Now that we have moved to a net-based
sales plan, a territory manager can see a
direct relationship between his behavior and
the amount of his check.”
—Project manager for commissions
U.S.-based manufacturer of flooring products
© 2013 IBM Corporation
Align incentives with corporate goals
Retail division of a Canadian bank
Offering a bonus for bundling multiple key
products together (for example, mortgage
along with insurance)
Recognizing cross-selling new product
families to their customers (such as a first
long-term debt product for that customer or
household)
Rewarding employees for referring
customers to another employee or business
unit
© 2013 IBM Corporation
Two axioms
1
2
Sales incentive compensation is the link
between corporate strategy and customer-
facing activity
This business process is one of the lowest-
hanging fruits for savings and efficiencies
© 2013 IBM Corporation
Slide
How do companies manage today?
Spreadsheets
(61%)
Home grown
(19%)
Commercial
software
(8%)
Manual
(10%)
Unknown
(2%)
Source: CSO Insights, 2012 Sales Compensation and Performance Management Key Trends Analysis, Jim Dickie and Barry Trailer, 2012.
© 2013 IBM Corporation
An all-too-common scenario
© 2013 IBM Corporation
90% 40% 50%
{
Organizations adopting
sales performance
management (SPM)
technologies
Reduce errors
by more than
Reduce processing
times by more than
Reduce IT/admin
staffing by more than
Getting results
Source: Gartner, MarketScope for Sales Incentive Compensation Management Software, Michael Dunne, March 5, 2010.
© 2013 IBM Corporation
Payout process reduced from
2 weeks to 2 days
Getting results
© 2013 IBM Corporation
Centralized payout administration from 30 to 3 employees for North
and South America
Getting results
© 2013 IBM Corporation
Focus sellers on selling
“When people didn’t understand what
their achievement was, we got pushback
on everything about our plan.
“By having transparency into the system
we don’t have to worry about them
saying, ‘Wait—I don’t get this.’”
“…spend more time selling”
—Steve Love, CFO
© 2013 IBM Corporation
i
iv
iii
What is incentive compensation management (ICM)?
What have other companies done to be successful?
Why should the office of finance care?
ii
What impact does it have on the organization?
Agenda
© 2013 IBM Corporation © 2013 IBM Corporation
Show me the
sales incentive plan …
and I’ll show you the company’s
business priorities.
© 2013 IBM Corporation
10.7% 11.5
%
{
Sales compensation spend as a
percentage of annual revenues is up
to 11.5%from 10.7%
Sales compensation spend today
Source: TBD
© 2013 IBM Corporation
What is important to sales?
Increase revenue
72%
Improve efficiency of sales
57%
Grow business in net new customers
56%
Align salesforce to business goals
56%
Increase selling to customers
47%
Source: Ventana Research, Sales on the Cutting Edge: Improving the Business of Sales to Maximize Revenue, December 2011.
© 2013 IBM Corporation
What role does finance play?
Wants access to information
35%
Influences and wants to improve sales
33%
Sponsors and funds investment
28%
Is not involved
22%
Don’t know
17%
Source: Ventana Research, Sales on the Cutting Edge: Improving the Business of Sales to Maximize Revenue, December 2011.
© 2013 IBM Corporation
Finance perspective: areas for improvement
More sophisticated selling behaviors
61%
Improved collaboration among sales and others
38%
Better reporting for forecasting and decision making
37%
Improved sales efficiency
35%
Increased use of modeling and analytics
30%
Improved collaboration among sales staff
26%
More responsive/flexible sales behavior
19%
Increased sales head count
10%
Source: CFO Research Services in collaboration with Varicent Software Incorporated (now an IBM Company), Managing Sales Incentive Compensation Amid Uncertainty, March 2010.
© 2013 IBM Corporation
Finance perspective: barriers to improvement
Organizational resistance among sales staff
29%
Lack of time, attention and resources
28%
Lack of collaboration among departments
27%
Lack of standardized approach to incentive
comp
22%
Inadequate technology systems
22%
Highly complex incentive plans
21%
Lack of tools and structures for plan design
20%
No clear business benefits
19%
Lack of visibility into comp plan performance
16%
Source: CFO Research Services in collaboration with Varicent Software Incorporated (now an IBM Company), Managing Sales Incentive Compensation Amid Uncertainty, March 2010.
© 2013 IBM Corporation
Critical lesson learned: align sales and finance priorities
Sales
Increase revenue
Reduce complexity
Decrease cycle times
Reduce errors
More analytics
More time to sell
Finance
Improve margins
Increase sophistication
More regulation
Information faster
Reduce IT/admin costs
More self-service
© 2013 IBM Corporation
Clear governance process and calendar
Accurate and timely payments
Easy statement and transaction access
Comprehensive and user-friendly documentation
“Baseline” management reports
Auditing and tracking controls
Reasonable system change timeline
Disputes resolved in timely manner
2013 table stakes
© 2013 IBM Corporation
Coverage model and role deployment
Sales priority linkages to the field
Insight to sales effectiveness
Incentive and sales forecasts
Program impact and modeling
Error and dispute reduction
Compensation process scalability
Flexibility and resource optimization
ICM and quota cycle time decreases
Auditing and compliance tracking
Program governance
Program and process reporting
1
2
3
4
Grow, retain and
satisfy customers
Manage risk, fraud and
regulatory compliance
Increase operational
efficiency
Transform financial
processes
Smarter
analytics
IBM Cognos
®
Incentive Compensation Management software drives
key imperatives
© 2013 IBM Corporation
Establish ICM guiding principles
Survey the field—executives, managers and plan participants
Conduct self-assessment and create ICM gap analysis
Create alternative paths forward
– Technology dependent
– Technology independent
Create the case for change
– Alignment/aspiration outcomes
– Hard dollar/efficiency outcomes
– Regulatory and compliance
Find a field champion
Call to action
© 2013 IBM Corporation
To learn morehttp://www.varicent.com/cfo/index.asp
© 2013 IBM Corporation
IBM Corporation 2013
IBM, the IBM logo, and ibm.com are trademarks or registered trademarks of International Business Machines Corporation in
the United States, other countries, or both. If these and other IBM trademarked terms are marked on their first occurrence in
this information with the appropriate symbol (
®
or
™
), these symbols indicate U.S. registered or common law trademarks
owned by IBM at the time this information was published. Such trademarks may also be registered or common law
trademarks in other countries. A current list of IBM trademarks is available on the Web at “Copyright and trademark
information” at www.ibm.com/legal/copytrade.shtml.
Other company, product, and service names may be trademarks or service marks of others.
References in this publication to IBM products or services do not imply that IBM intends to make them available in all
countries in which IBM operates.
Trademarks and notes
doc_850812610.pdf