Your Guide to Choosing the Best Incentive Compensation Management Software

Put yourself in your seller's shoes: They've hustled all month and feel good about the deals they've closed. Maybe they're even considering a splurge purchase. Then their paycheck arrives, and they're surprised by the amount. It's lower than expected and now they're disappointed, confused, and have questions.

The seller checks the amount with Finance and asks for an explanation of the payout calculations. Or perhaps they begin tracking their own deals. Either way, the seller's morale has taken a hit and time is wasted. Unfortunately, this scenario is common. But it's easily remedied with incentive compensation management software.

What you'll learn:

• What is incentive compensation management software?
• Importance of incentive compensation management in business
• Key features of incentive compensation management software
• Benefits of using incentive compensation management software
• 5 Steps for implementing incentive compensation management software
• Common challenges and how to overcome them
• Best practices for effective incentive compensation management
• Future trends in incentive compensation management software
• How to choose the right incentive compensation management software for your sales team

Incentive compensation management (ICM) software helps businesses design, implement, and manage employee rewards plans to motivate sales teams and drive performance. Importantly, this software helps align organizational strategies with seller goals and provides key features such as commission calculations, real-time performance insight, and accurate payouts and reporting.

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Paying employees accurately and on time is mission critical for every business. This is pretty straightforward for many functions but less so in sales. In my experience, the majority of sellers are on a 50/50 pay structure in which half their compensation comes from their base salary and the other half is commission-based or variable. There are many upsides to variable compensation, but it works best when compensation plans are closely aligned with business objectives.

That's easier said than done. The highest-level objective is to generate revenue for the company, and everyone wants to land the most lucrative deals. But there may be some nuance around other objectives you want to drive. For example, the strategy may involve selling a less expensive, newer product so it can gain market share — a short-term play for a long-term benefit. Or, you may want to incentivize your sellers to go above and beyond and exceed quota by offering a short-term SPIFF for a given month.

Whatever the details might be, you don't want your reps focused on them. Sellers should understand the objectives and compensation structure, which ICM software helps with, and stay focused on closing deals. What you don't want them to do is to start keeping a spreadsheet on the side to track their earnings (and trust me — many sellers do).

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Incentive compensation management software removes the burden of tracking earnings and helps your sales team rest assured that their commissions are accounted for and accurate. ICM software doesn't just benefit the seller. It allows your business to do things such as automate commission calculations, reduce administrative overhead, improve departmental alignment, and optimize revenue growth.

When evaluating ICM software, there are several key features that should be table stakes.

• Automated compensation calculations: Here's the real talk: Your ICM tool needs to do math really well. Choose software that makes commission tracking and bonus management easy and eliminates questions about specific calculations with automated calculations and commission-tracing functionality.
• Performance tracking: ICM software should offer an easy-to-use, visual dashboard of performance tracking — across the team, but also for individual reps. This may include commission breakdowns, trends, and quota management, such as quarter-to-date attainment. Some tools may offer customized rep statements that even offer commission predictions and potential earnings.
• Compliance management: Be sure the vendor you select maintains a comprehensive set of compliance certifications and gives you features such as historical audit trails.
• Integration with HR systems: It's mission critical that the ICM software you choose plays well with your HR systems. It should connect with everything from your customer relationship management (CRM) software, enterprise resource planning (ERP) software, human capital management, payroll, or any other system with speed and ease to create a real-time, single source of truth for all commission needs. Thoroughly investigate what potential integrations involve.
• Ability to handle complexity: You might say to yourself, "How complicated can commissions be, if you get 10% of whatever you sell?" The truth is that many commission structures are quite complex and may include marginal tiered commission structures or complicated quota attainments. You also have to consider the crediting system for deals. The ICM system needs to be able to handle all that nuance.
• Ease of administration: Consider that legacy tools often require external professional services organizations to make changes in the system. That's no longer the way. You'll want to be able to manage your ICM tool on your own, and easily integrate data and make changes to plan designs.
• Advanced reporting: Reporting can be more than a look back; a great ICM tool will help you plan forward into next year's compensation planning. With strong analytics, the sky is the limit.

At a bare minimum, sellers also need:

• Real-time visibility: Sellers need to see a dashboard or report that shows how they're doing in as close to real time as possible. This might include how many deals they've closed, what their commissions earned to date are, how much revenue they're generating, or how they're tracking against their quota or target. You should be able to configure this dashboard to show the metrics by which your business measures sales success.
• Detailed breakdowns: The tool should also provide enough detail to help a seller understand how commissions are calculated. For example, a legacy vendor might just provide a lump-sum commission — that's pretty easy for a seller to spot check for accuracy. However, without more granular detail, the seller may still have questions about how you arrived at that number. The more of a breakdown you can provide, the fewer questions a rep will feel compelled to ask.
• Forecasting: Sellers want to know how they're doing — and also what they can do. With data-driven insights figured into incentive estimates earlier in the process, sellers can look to the future feeling more motivated to reach their numbers and close the deals that will get them there.

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Incentive management compensation software provides many benefits. These include:

• Accuracy. This is king. By automating compensation plans and commissions, you reduce room for human error and gain seller trust. Accuracy is also important for the business, reducing things such as commission over- and under-payments, which add up when they occur across the team.
• Alignment of incentives with business goals. Key business initiatives can drop lower on the priority list if the seller is chasing a lucrative deal or a quick win. ICM tools help keep the incentivized activities visible, so sellers are aware of their contribution to overall business goals in any given quarter.
• Efficiency. ICM software maximizes a seller's ability to focus on selling activities. When sellers spend their time trying to figure out how much money they're making or disputing their commissions, that qualifies as a non-selling activity.
• Transparency. When compensation is managed in spreadsheets, reps don't have easy visibility into their commissions. They also don't have clarity into how commissions are calculated and may have questions at the end of the month or quarter about how you've arrived at the amount they receive.
• Scalability. Spreadsheets, in particular, don't scale very well. (Some legacy tools don't, either, at least not without a lot of time and effort.) So, although you can do math in spreadsheets, they become challenging to work with once you've reached a certain size or level of compensation complexity.

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Once you've selected an ICM tool, there are generally two implementation pathways: moving from spreadsheets into the incentive compensation management software or migrating off a legacy tool. Your method will affect the complexity of the implementation, and the overall timeline tends to vary by company.

Let's take a look at the high-level steps for implementing incentive compensation management software.

First, consider where compensation sits within your organization and make sure you have discussed with all key stakeholders (typically within Sales, Finance, HR, and IT) the following:

• Which tools, including other sales software and your overall IT infrastructure, the ICM needs to integrate with
• The health of the data in each system that will feed into the new tool
• How existing compensation plans are formulated and deals are credited
• Whether the compensation plans you're migrating or redesigning are still needed
• The types of questions sellers routinely raise about compensation or any pain points you're trying to solve for with the configuration

Some ICM software vendors can guide you through the implementation process. If you're going it alone, it's important you have everything you need before getting started so you can think through the architecture holistically. That way, your configuration will be logical and won't be a challenge to administer.

Whenever I'm configuring an ICM tool, I try to eliminate bloat in the system. Don't strictly replicate a legacy tool or build in things you don't need. For example, if you have 15 formulas that all do something similar, consider whether you can pare that down — maybe even to just one formula. Or if you have 30 rate tables, is there a way you can use fewer? The goal is to start with streamlined. easy-to-manage compensation plans.

Once the tool is configured, it's time to migrate data from all required systems. That means testing thoroughly to ensure the data is accurate and the tool is producing the outcomes and commission breakdowns you expect. It's a critical step and is often a challenge.

As with any tool, you'll need to have a rollout plan and training so your sales team understands why this software is important and not just another tool they need to learn. Provide the team with clear instructions for how to access and navigate it, and walk them through the areas that will benefit them most.

Outside of the business metrics and insight the software provides, also consider how you want to measure the success of the implementation and track its return on investment (ROI). The following methods are two examples that may apply to your business.

• Time spent managing the tool (versus other value-adding activities): A great ICM tool should make everyone's lives a little easier. For example, it should allow a commissions administrator to spend time analyzing the data to make decisions about commissions for the following year, such as adjusting quotas or rate tables. When the software is working for you, the data should help answer questions such as: How are we going to maximize revenue generation? But if the commission admin is bogged down in the day to day of managing the tool, they'll never get to that next, more strategic step.
• How quickly commissions are paid: Some companies are in arrears an entire quarter, and not because they want to be. It's because it takes them that long to get through commissions. That has downstream effects and can impact rep attrition. Put simply: Reps need to feel and understand that you're paying them in a way that they agree is fair so they don't jump ship.

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There are three common challenges that clients tend to face during the implementation process. If you plan ahead, these obstacles can be resolved — or avoided.

Like any tool, the software is going to be reliant on the quality of the data it's fed. If the data is inaccurate or incomplete, the math won't add up.

The fix: The best way to avoid this is to clean up your data before you begin. Some ICM tools can help reconcile data from connected sources using machine learning to match records automatically and eliminate manual errors among systems.

I've run into scenarios where a company's requirements are not programmatic — meaning that the requirements are subjective and require a decision by somebody. For example, something like, "Do I give this person credit for the deal, or not?" It's important to document rules for how compensation is calculated. Your system admin can't automate processes if there's not a consistent way of handling things.

The fix: This scenario slows an implementation or can cause some challenging tool administration after the fact. The good news is that once these decisions are made, the ICM tool becomes a single and reliable source of truth.

Even the best-configured tools can be underutilized when employees don't understand why they are important and don't learn how to access and navigate them. And without reminders, they simply forget because they are busy or locked into older habits.

The fix: Be sure to create an enablement and rollout plan. Provide training, send reminders, and offer an avenue for sellers to ask questions or request help. Consider a Slack channel, email alias, help desk or someone dedicated to supporting the team through the software's onboarding period.

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When we think about incentive compensation management for all employees, many of the same best practices apply. These include regularly reviewing performance and trends, providing continuous training, and leveraging data insights for decision-making. With clients, I also underscore these core tenets:

• Keep it simple. There are typically only a handful of compensation structures that companies use, yet within those tried-and-true models, there can be a lot of nuance. Sometimes someone in finance or accounting has gotten really clever with the compensation structure, which might make sense from their perspective. The risk is that it may come across as overly complicated to the seller. It's important that your reps understand sales incentives and compensation plans and the reasoning behind them, especially if it seems like there are many hoops to jump though.
• Be as transparent as possible. I can tell you firsthand that I've used some legacy tools and still kept a sheet on the side because I didn't trust the tool or understand how it was doing its math. For me, the measure of a good tool and implementation is when the rep can trust the system and can find the answers to any questions they might have about how their pay works and how their commissions are tracking. Talk to your sales team to understand the questions they have and what they're interested in seeing.

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Incentive management software is a growing market and has been for years.

Companies that have implemented ICM software report tangible benefits. For example, Modern Health, a health tech company that provides a global mental health platform, needed to streamline and establish a commission process as the company and its sales team grew. After implementing an ICM tool, Modern Health decreased time spent managing commissions by 91% and now has a solution that can scale.

Or take Bynder, a leader in digital asset management (DAM), which implemented ICM software to increase transparency and trust with employees. The company wanted to provide more visibility into commissions and felt the pain of not having a more automated solution in place. After switching to the tool, Bynder saw the number of commission-related questions drop and also gained back time that could be applied to more value-added activities.

Many ICM software vendors are looking to amplify these benefits and outcomes by delving into the many ways that artificial intelligence (AI) and machine learning (ML) can optimize incentive compensation management. For starters, these may include:

• Automating complex processes, such as taking common language descriptions of how you handle compensation and using that to configure a tool
• Leveraging advanced analytics and integrations with other business intelligence tools for things such as predicting future commission payouts based on historical earnings

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If the challenges described in this article sound familiar, consider adding incentive compensation management software to your sales tech stack. Start by assessing business needs and determining how an ICM tool can streamline commissions and rally your sales team to sell more. Be sure to evaluate software features thoroughly and consider scalability, ease of use, and cost. Ask yourself whether the tool can handle the complexities of your compensation plan, and whether your team can manage the tool or whether you'll need to rely on the vendor's professional services.

Digital cloud-based solutions that automate commissions and provide sellers with accurate real-time progress help realign the team to current business priorities. They also motivate sellers to push themselves further to attain that splurge-spending status. Just remember to keep it simple so your sellers don't spend valuable selling time trying to decipher their commissions.

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