SALES COMPENSATION
Commission pay errors cost companies over £5m a year
Companies are squandering large sums of money over badly managed sales commission plans, according to a survey amongst UK sales directors.
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Almost a quarter of companies surveyed said they regularly saw errors of in excess of 10% of the total commission paid – with more than a quarter spending over £50 million on commission annually. Another 20% said they did not know what errors occurred when paying out sales commissions.
The survey was undertaken by market research specialist Vanson Bourne on behalf of OpenSymmetry.
Key survey results
Over half of the sales directors in the survey admitted that they regularly had to deal with queries and complaints from the sales force.
Two-thirds said they worried “occasionally” or “frequently” about the accuracy of their sales commissions.
Just over a quarter of respondents believed their compensation plans motivated and drove their sales force effectively.
More than two in three said their compensation plans needed improving in order to keep up with the changing business, market or company direction.
When asked what kind of system they use to handle commission calculations, a third of the sales directors surveyed said they did not have a single system in place.
Of those that do have a system in place: more than half rely on a home-grown solution built by their own IT department; 12% use Excel-based or other spreadsheet packages; less than a third said they had a special, customised third-party software solution installed.
The study also revealed that across industries, there is no clear assignment of responsibility for the sales compensation plans – primary responsibility was either with the sales department, finance, marketing or human resources.
And, while almost a half of respondents said they were going to revise their policies for commission payments in the context of the economic slowdown, one in four respondents also said it took more than six months to create and implement a new compensation plan.
A final word
“We are being asked more and more to assist with the sales challenge to get control of incentive costs and ensure incentive plans drive performance and behaviour. It is one of the greatest challenges in the marketplace.
One of the key barriers to driving sales performance through effective compensation is often misalignment in the management team. CEOs need to challenge the ownership and responsibility for this important area of their business, being very aware of its direct impact on the bottom line. We also come across many circumstances where the inability to launch products directly relates to the lack of flexibility in customers’ existing systems, creating a bottleneck which affects departments across the entire organisation.” - John Stuart, business development director at OpenSymmetry.
Want to know more?
Survey sample: Vanson Bourne surveyed 153 sales directors in the UK in companies with more than 100 direct sales representatives or other indirect channels, in the telecoms, insurance, financial services, pharmaceutical, hi-tech and manufacturing industries. The survey was carried out in November 2008.
OpenSymmetry is a leading independent consulting and integration firm that offers highly specialised services focused on delivering sales performance management (SPM) solutions to clients worldwide. To find out more visit www.opensymmetry.com/spm.shtml.