The economic market is signaling a renewed focus on growth, although this is good news, there is concern that demographic trends point to a shortage of talent. Motivating and retaining the workforce and in particular top talent, is paramount as this in turn means increased productivity and sales.
On the surface, this statement may appear obvious; employee reward programmes are not a new concept. However leading edge companies today are taking a more strategic approach to incentives not only to motivate and retain top talent but also to increase sales performance through reward.
Technology's role in accelerating productivity gains, in order to sell more has advanced dramatically, most notably, according to analysts Gartner, in the area of Incentive Compensation Management.
Today variable pay is referred to as Incentive Compensation Management or ICM, embracing all aspects of reward for pay performance programmes. This might encompass incentive schemes, commission and bonus pay as well as general incentives and non-cash based prizes. Compensation is a proven productivity driver for employees, however the adoption of expert software to expedite and measure the process is surprisingly slow. This is intriguing given the significant savings these systems can introduce.
Traditionally, Incentive Compensation Management has rested with the finance department because of the number crunching element to variable pay. However, by its very nature, ICM is overlapping with other departments, most notably HR and Payroll. This is because it not only embraces strategy and drives performance through reward, it also revolutionises the assessment, development and compensation of employees.
Analysts, such as Human Resource consultants Mercer now recognise incentive-driven organisations achieve real benefits such as, focused employee activity and behaviour, increased productivity potential and attraction and retention of top sales talent. So in short, getting the incentive and reward element right can make the difference between profit or loss.
This is especially pertinent when the following figures are analysed
- 5-12% is the figure analysts estimate is overpayment on the annual compensation budget
- Tracking and reporting compensation for a single employee can cost as much as £1000 or ($1800) annually
- Between 1-4 days per month on average is spend per sales person re-calculating compensation payments
- 1.5 x base salary is the typical cost of replacing a sales person
Why is ICM so overlooked?
Most companies, certainly in Europe, still rely on spreadsheets and homegrown systems to administer the incentive compensation process. In principal, these tools are adequate and do a good job. However, ICM software automates the process of creating and maintaining incentive schemes as well as the calculation and reporting on commission and bonus spend. ICM is effective because it significantly reduces the likelihood of commission overspend and unnecessary administration overhead.
Real-time systems integrate with HR systems introducing workflow management as well as authorisation controls for payment and statement release. The benefits to HR are: control of the commission strategy by implementing plans appropriate to employee roles and aligning productivity with overall business targets and objectives.
Individual staff benefit directly from the implementation of an ICM system because they have access to personal online statements. These clearly identify where, as an individual they are against target at any given point in the month, which is highly motivating. In addition any commission and bonus earned is paid one month in arrears which eliminates the need for shadow accounting which is rife in organisations which calculate commission and bonus via spreadsheets where the data is manually input and frequently error ridden.
Incentives can be implemented quickly with an ICM system, to capitalise on rapidly changing market conditions. The ability to make adjustments and implement changes quickly means less time is spent responding to issues reported by the workforce at the end of each pay period. This results in time freed up by reduced administration effort meaning valuable resource is diverted to analysis, measurement and strategic planning.
On a motivational level, managers can view league tables, which demonstrate the performance of teams as well as individuals. For key performers or teams, stretch targets can be introduced, which is highly motivating not only for the individual but beneficial to the organisation as a whole. Personal objectives can easily be aligned to business goals to motivate and tie performance to company profit objectives.
One of the key motivational areas for employees is how effectively the incentive scheme is communicated and understood and how performance is reported and measured against each scheme. Inappropriately targeted incentives, late or inaccurate payments, unexplained adjustments and unreliable reports breeds distrust and creates a sense of disillusionment amongst employees and teams.
Cable & Wireless one of the world´s leading international communications companies is an excellent illustration of how an Incentive Compensation Management scheme can positively impact employee motivation.
An incentive compensation solution was implemented to address the challenges Cable & Wireless faced which included a fragmented commissions structure, high dependency on spreadsheets to record commissions and a significant headcount to manage the process. In addition to unproductive time spent querying commissions paid, a high level of individual queries and issues with existing controls resulted in overpayments. Coupled with limited visibility and financial analysis to assess commission claims and limited analysis and reporting on performance.
The results of the ICM implementation exceeded expectations. The first six months of operation in 2005 the company showed double-digit growth in comparison with the same period the previous year.
August in particular was a key. Traditionally a quiet sales month, an incentive was needed to motivate and boost performance. Within eight hours a new incentive was devised and implemented to go live on 1st August. The web-based incentive management software made this possible and as a result Cable & Wireless´ order in-take doubled compared with the same month the previous year.
The key here is the sales team understood their commission, the impact it had on them personally and on the business as a whole. Whilst the majority of employers use some form of incentive scheme as part of their remuneration strategy, many cannot identify exactly how the incentive motivates people, whether or not the scheme is effective or if they are paying too much or too little. Design and modelling of commission schemes are vital because sales people need to be able to see what they are earning and to focus their behaviour. In this way incentives need to be in line with business objectives and sales staff need to understand the business focus.
To conclude, ICM is proven to pull together vital parts of the business to promote growth of the company and the personal growth of its people.
Jo Walker is the CEO of Practique, Europe´s only specialist vendor of ICM software, www.practique.co.uk. INCA is its web-based solution, which is designed for enterprise companies, and INCA Professional is targeted at organisations with less complex commission requirements with a sales staff of 150
For enquiries call Nick Blythe 44 1344 855993
