What does it take to become a top sales comp manager? We hope to be able to help answer that question
We plan to go over the key jobs that need to be done every month by a top-tier sales comp manager.
We created our preflight checklist — all those tasks you need to check off to run your monthly compensation processes successfully.
In almost every businesses’ annual calendar, there will be a few “big projects” — modeling the new plans, reviewing different strategies including an annual program assessment and setting up new goals for the year. But for all those projects it’s essential to have a monthly checklist to calculate commissions effectively, create accurate reports and communicate regularly and strategically with your personnel.
David Marshall, Performio’s founder, has been working in the incentive compensation management industry for more than 20 years. An expert in all things related to compensation management, David will walk us through a monthly process that will lead to you becoming a top-tier sales compensation manager.
The Sales Compensation Preflight Checklist
Think of our preflight checklist the same way you would think of the list a pilot goes through before they are ready to take off. Our checklist covers eight critical areas that all compensation managers need to think about on a monthly basis:
- Capturing and Organizing Data
- Managing Credit Rules and Roll-ups
- Capturing and Keeping All Participants Updated
- Managing Calculation Rules
- Handling Exceptions
- Reconciling Reports
- Getting Approvals For Payroll
- Reports and Communication
The CurveBall 2000
It’s all very well to talk about running a monthly process, but the real test of all hardened processes is an actual request. So, for example, perhaps the sales operation manager or the VP of sales comes up to you one day and says, “We need to pay compensation on our new project that just launched last Friday.”
It’s a situation familiar to most sales compensation managers. The problem is that the people are making the request only see the iceberg above the waterline. This means that they don’t understand the complexity below the waterline regarding all the potential impacts that this simple request may have on how you manage commissions — issues like shared sales, eligibility, effects on existing promotions and implications for source data, to name a few things.
So let’s look at a working example of how to step through the process if this happens rather than just talking about it theoretically.
You have a project which we'll call the CurveBall 2000. The BI team produces a flat file for you when the nightly batch feed is ready. They will send you a spreadsheet of data that you can use to calculate commissions for sales of CurveBall 2000.
Your VP of sales has advised that order takers will receive 10 percent of their annual contract value, plus a five percent kicker if they exceed the target. Sales managers will earn a certain amount of commission per sale, and the VP of sales gets paid according to their attainment of a quota. As an extra sweetener, free tickets for the next World Series will go to the top three salespeople.
So the pressure is on. What does a top-flight compensation manager do in such a situation? They look at their eight steps.
1. Capturing and Organizing Data
The first thing is capturing and organizing the data. So while we highly recommend using a software program like Performio, we are also going to talk generally about using spreadsheets and some other system.
The most important thing is avoiding proliferation and complexity that doesn’t add value. So with a project like Curve Ball 2000, you need to avoid having new worksheets, new tables, new lookups, new reports, ad hoc pivots and so on.
We see this happen a lot. If it’s a one-off, you’ll probably be okay. But most of the time it is not a one-off. So a key challenge for compensation managers is to deal with these requests, like the one made by the vice president of sales, and keep them coherent and consistent with the company’s philosophy on how to manage data.
So using an ATL tool, spreadsheets or a product like Performio, organize and transform your data into a standard way of handling that data for everything.
Let’s call it a commission table — the standard repository of data where you will normalize all your data. It should flow like this:
- Start with source data.
- The source data then goes through transformation steps.
- This feeds into the participant list, and under the participant list, you have a commission table and the calculation rules.
- These lead to the summary output.
- These all make their way into reports.
You need a standard way of handling participants, so use a set of calculation rules that are baked in which allow you to provide reports. So when you get your data it will include:
- A unique identifier for the member name
- Some customer information
- Product identifier or SKU
- Quantity and order value
It’s imperative that your source data is a flat data file. Do not accept anything less. Do not allow a "fat" data file. It’s not your job to take pivot tables or manager reports and try to transform them into source data.
You should get a clean file and then it’s your job to worry about how you’re going to put that into your commission environment. Otherwise, you’re just doing extra duties that you shouldn’t have to.
2. Managing Crediting Rules and Roll-Ups
Once you have organized the data within your solution set up, the next step is to credit the sales in the source table data. But it’s more than just calculating commissions — you need to know how you’re doing it. Performio has the concept of creating rules based on roll-ups so you can organize credits into columns in your source data table.
If you’re using spreadsheets, you will likely be using Vlookups, matches or something similar. The concept here is to get our managers' ID column and resource data table and give credit for all the records that are tagged for the salespeople against the manager.
So when we look at our source data and apply the credit, it updates the table with the correct managers. For example, let's say Adam reports to Randy. If we've organized the data correctly, we have not only calculated commissions for salespeople like Adam but also commissions for the managers like Randy.
You then need to turn your attention to the vice president of sales. Since we're not calculating commission records for the VP, we need to work out their title obtainment. But with Performio, you don’t need to duplicate all the same data for the VP. You put the credits straight into the commission table. So you have the order takers, the managers have their records in the participant EID column, and then you have the vice president of sales who is getting credit for everyone rolling up in the hierarchy.
3. Capturing and Keeping All Participants Updated
Organizing data and managing the rollup in the credits are essential first principles. But the next most important thing is keeping all of your participants up-to-date.
If you’re thinking about best practices, you need to synchronize your participant list with your source HRIS data. If you make changes to your participant lists — additions, moves, changes to the plan's membership and so on — it is very time-consuming.
With Performio, you can synchronize your source data and your participant list. It will automatically tell you who needs to be created, updated or deactivated, and you can take these actions and then synchronize the data into your Participants Table.
Another benefit of synchronizing is that it connects all your attributes concerning job titles, on target commissions, team membership, leaderboards, plans and it is date specific.
4. Managing Calculation Rules
So you have all your data in place — now you need to implement the CurveBall 2000. You need a modular way to enforce new calculation rules against your commission table.
In Performio, you can hook your calculation modules into any table, not just the commission table. Again, we can’t recommend enough this idea that you should be normalizing your data in one place when you do your calculations. Use pre-baked, tested models that plug into your commission table.
If you’re using Excel or Access, you need to think of how you’re going to have reusable formula components in your setup. If not, you’ll need to create calculations from scratch that need to be tested.
It is critical to have a single worksheet to manage all your details, so you don't have to go off somewhere else to handle the CurveBall 2000 program. It’s all within your current commission plan — a single place where you capture all the variables.
If compensation managers and their companies get into trouble, it often stems from having all these components in different places in the workbook or completely different workbooks.
All your calculation rules should be in one place so you can manage them effectively.
5. Handling Exceptions
It would be a lovely world indeed if everything went according to plan. But you need to be prepared for the fact that exceptions will occur. The one mistake compensation managers make, the adjustments created throughout their whole work set up. They have changes in the source data level, the worksheets, the summary table, the payment summary and so forth.
It’s important to think about your solution design and think about where the adjustments need to be set. The best practice is to have them all in one spot so you can contain and manage them there. Put them into the commission table so that any adjustments to records are captured there. The benefit is they then hook into your calculations and your reports automatically.
In Performio, if you looked at the CurveBall 2000 project, you might find a couple of records where you need to do an override, on a value for example. With Performio that override “sticks,” so it doesn’t get removed or lost when you rerun your calculations. It has a date stamp and the reason text. So from an order point of view, you don’t have to go thinking, “Where did all these adjustments come from?”
6. Reconciling Reports
Top-flight sales compensation managers don’t "stare into the sun" — which means they don’t stare at their spreadsheet for hours, trying to find holes in it, trying to detect errors in their formula or their data. Yes, it’s a good exercise, but it’s incredibly inefficient.
The problem is they don’t have total confidence that the spreadsheets or the systems are right. You need to have a hard and fast process of reconciling and validating. This does not mean allocating a lot of time to look at the data and check figures. Over time you need to build out your preflight checklist of all your tests.
Perhaps you run some smoke tests for a rough check, but you also need to have some tests that poke holes at the pressure point of your solution so you can be confident when you go to the approval stage that your data is correct based on the information that’s coming.
So rather than “staring at the sun,” you should have as many items on your checklist as you need and check them off. And once you’ve checked them off, you’ll have ironclad confidence that everything is set up right.
7. Getting Approvals for Payroll
At this point, you ask the stakeholders to do final checks and approvals on the numbers. Since you built your information off your standard solution design, it’s very easy to create and deploy an approval module in Performio. You can set approval levels at up to three different levels throughout your hierarchy.
8. Reports and Communication
The sales comp manager does a lot more than set commissions for the payroll. They also provide clean, concise reports and effective communication. Since the data was imported into the commission’s table, CurveBall 2000 sales appear automatically in our existing commission reports. We don’t need to create new reports, although we could if we needed to.
Again, since we’ve built our reports off standard modeling, it gives us a leaderboard with the CurveBall 2000 ACV and the number of sales, weighted against annual attainments. This gives us the names of the top three salespeople who are in line for World Series tickets.
Top-flight sales compensation managers will be pushing out automatic alerts to the sales force daily or weekly. You can have a whole series of emails that target different levels of performance. While your vice president of sales announces the product, you’re reinforcing the message clearly with pay and performance information aimed at each payee.
Keep the Preflight Checklist in Mind
Keep those eight steps in mind. Now you may have 22 subtasks that you need to check off as part of the eight main steps. But once you do check them off, you can do payroll, published reports and initiate communication with confidence.
You don’t have to overcook the checklist. You don’t need a 782-page instruction manual. It’s not so much about the instructions. It’s about those funky little things that pop up regularly that might create an issue but you catch because of your checklist. Neither you nor your staff members will forget that the next time because you will always have the checklist.
Why Is Using A Sales Compensation Software Program Better Than Using A Spreadsheet?
When you try to administer sales compensation using a spreadsheet, if the commissions are not system-generated, calculating them is a huge problem. The task of trying to make sure spreadsheets are formatted correctly and that all sales data is correct is exceptionally tedious. There is also a problem of creating sales when several members of the team get the commission on the same deal but are paid at different rates.
With a manual process, a mistake can affect your financials, how much people get paid, how a sales plan is working — every aspect. You may send the wrong report and expose payroll information. When you use spreadsheets, the info frequently goes on to a shared drive. That means getting your IT department to block certain people from being able to view files.
Finally, why spend a whole day creating a sales compensation report that should only take you half an hour?
Let Performio Turn You Into a Top-Flight Sales Compensation Manager
If you want to use that eight-point pre-flight checklist efficiently, you need a robust and powerful software program that can handle all the different tasks you need to do. Performio is the software tool that you need to make that next step.
If you are serious about creating a high-performance culture in your company, request a demonstration today. We offer a 14-day trial so you can see how Performio can help your company. We invite you to give our fabulous product a try or contact us with any questions you might have.