I spend A LOT of time at softball games. Both of my daughters play club softball and as they improve each year, the games get more and more competitive to watch. However, during those early years, the errors were plentiful and the accuracy of plays were slim. While errors during the formative years of learning the game of softball are teaching moments, there’s no place for those errors when managing incentive compensation. There’s a lot riding on accurate incentive compensation payments.
One mistake, and either sales reps are upset they weren’t paid enough, or finance is upset they were paid too much. You’ll waste time re-running the numbers to find and correct the error, run new calculations, issue adjustments, and resolve the disputes. And morale will suffer across the board.
Other times, no one catches the mistake, and you could end up costing the organization money. If it’s a mistake that gets repeated over several pay periods, it could cost the organization a lot of money.
Maybe you’ve dealt with errors in the past. Or perhaps you often find yourself ready to hit “send” on the final sales commission payments sheet, but you hesitate because of a lingering doubt?
Either way, in this article we’ll cover seven ways to avoid those errors and set your mind at ease.
7 ways to avoid sales incentive payment errors
Incentive payments are designed to increase the performance of your sales team, but when they contain errors, it has the opposite effect. Thankfully, you can lower the risk of sales incentive payment errors by taking a few precautions.
1. Run smoke tests on total payable
In buildings, HVAC specialists sometimes use smoke to find gaps in the insulation, where heat (and money) is being lost to inefficiency. In sales compensation management, smoke tests help you find the gaps in your payroll system. Smoke tests offer a way to double-check your figures and spot errors that may not have otherwise been obvious. By making the right comparisons, it will be much easier to see anomalies that may point to mistakes. There are three main smoke tests to try.
Smoke test #1: Compare total payable to the previous month
Pull up the output data from last month’s payroll, run a comparison with the current month’s payroll, and look for any significant variances. If everything is comparable, with no major outliers month to month, that’s a good indicator that you’re on track.
If there is a major variance, you’ll need to do some further investigation to identify the cause. There may well be a reasonable explanation, but it could also point to an error.
In Performio, you can run this comparison.
Smoke test #2: Compare total payable to the budget
Check this month’s total payable against the budget to ensure that it lines up. Ideally, everything will be reasonably within budget, providing another positive indication that the sales incentive payments are in order.
If any figures are significantly over or under budget, you’ll need to identify the reason why. And if there is no good reason, you may have found an error.
Smoke test #3: Identify your top earners
While the performance of individual sales reps will fluctuate somewhat from month to month, you’ll likely have a few earners who always seem to end up near the top. Pay attention to who they are, and check whether that changes.
Hopefully your lower earners are working on improving and moving up the ranks, but it would be surprising if someone from the bottom suddenly straight to the top. Even more surprising if a top earner completely drops the ball. Either way, this is a good indicator to check whether an error may have crept in.
Performio lets you see and compare your sales reps’ performance.
2. Run a target sum check
A target sum check lets you verify sales rep performance against total targets. To run a target sum check, you add up the performance of each individual employee in a department, then compare that sum with the total department target. You can also add up the performance for the whole department, then compare that sum with the total national target. Look for major discrepancies in either.
In Performio, you can access these figures and easily run those checks.
3. Run a sales sum check
A sales sum check allows you to verify that all accruals add up to the national figure based on sales crediting rules. To run this check, add up the total sales figures from your sales incentive file, then compare it to the source data you received, and look for any discrepancies.
4. Run a payees check
Employees come and go all the time, but sometimes the records aren’t properly updated when they leave. A payees check ensures that no additional payments go out to people who no longer work for you.
Obtain the list of eligible salespeople (payees) from your HR system, compare that list against the incentive compensation payments you’ve prepared, and verify that it contains all the correct people.
5. Institute a broader approval process
It’s often more difficult to spot errors in the data you’ve personally collected and calculated than it is to spot errors in someone else’s work. So it can be helpful to get a fresh set of eyes to review your work before submitting it. Just make sure it’s someone who also has approval to see this data. Your manager may be a good candidate to review and sign off on your tests.
Performio comes with built-in approval workflows to make this process seamless.
6. Send commission reports to other stakeholders
No one knows the details of how each sales team has operated during a given period better than the sales managers of each of those teams. And no one knows the details of each individual transaction better than the sales reps who completed those transactions. Sending the relevant portions of your sales commission reports to sales managers and even individual sales reps gives them the chance to review your work and spot any errors.
Better yet, in Performio, they’ll already have access to all of their relevant data in their dashboards. Sales managers and sales reps alike will each be able to see all the transactions and figures pertinent to their roles.
7. Use incentive compensation management software
If you’ve noticed a through line in these tips, it’s that they rely on a good incentive compensation management (ICM) solution. Without dedicated ICM software, any of these checks would require an unreasonable amount of effort.
But more importantly, an ICM platform like Performio is the number one way to avoid introducing errors in the first place.
Most of the errors introduced into incentive compensation payments are the result of trying to use spreadsheets or other systems that weren’t designed to do ICM. It’s way too easy to introduce a typo into a sea of rows and columns and formulas, and nearly impossible to track down once you do.
Performio ensures that your data and calculations are correct in the first place, so you don’t have to worry about errors.
Supercharge your incentive compensation with Performio
Avoiding errors is just the icing on the cake of everything Performio has to offer. Because you don’t just need any ICM platform—you need the best.
Performio’s ICM solution gives you powerful tools for creating new sales comp plans, tracking performance of individuals and the team as a whole, calculating commissions, generating reports, and seamlessly communicating within the team.
Our software tracks everything for you, providing sales-comp admins with all the data they need to keep teams on course toward meeting their goals, and giving sales reps a real-time window into how they’re doing and what they can expect to earn.
Ready to see what Performio can do for your organization? Request a demo today!