Ensuring sales people receive commissions and performance bonuses promptly and in the correct amount has long been a headache for sales managers, who have turned to sales compensation management software in recent years to automate the oftentimes complicated process.
Late or incorrect bonuses can lead to employee discontent and even turnover, a result most sales managers are eager to avoid.
But now the finance department is recognizing the benefits of software dedicated to tracking myriad plans and contracts, and CFOs are taking a larger role in the purchasing decision. Finance is realizing senior managers can spend days perfecting end-of-quarter spreadsheets and financial reports before sending figures through an approval workflow that can then take weeks before payroll finally cuts the checks.
Karina Day, director of global compensation at Ariba Inc., a business commerce software and network provider based in Sunnyvale, Calif., has cut turnaround time to a fraction of what it once was. In October 2010, Ariba replaced a homegrown SQL database application with Xactly Incent, a Software as a Service (SaaS) application from San Jose, Calif.-based Xactly Corp. It uses the software to track and process bonuses and other types of variable compensation in 19 currencies for approximately 850 global employees.
Before implementing the software, Ariba's sales team had to wait two to three weeks after a month's close for data on closed deals from finance’s bookings report to be visible on commission statements. "Now they see it within 5-10 days of when the deal is signed," Day said.
In addition, roughly 90% of new sales incentives plans get into the system within the first week of being distributed by managers. In the past, Day's team had to chase down the plans, which describe the kickers, quotas and bonuses agreed to for each employee. The approval process has been firmed up, too: Xactly Incent won’t let plans kick in without an electronic sign-off, according to Day.
Sales compensation software finds broad appeal
Three analysts said the software, which is also called incentive compensation management, is gaining in popularity for several compelling reasons.
"The real driver, I think, is the size of the company," said Denis Pombriant, a customer relationship management (CRM) analyst and managing principal of Beagle Research Corp., which is based in Stoughton, Mass. "As the company grows bigger and you have more salespeople, you inevitably introduce more complexity. You have more products, and you have more people getting a piece of the deal."
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Additionally, CFOs are getting more involved in purchasing sales compensation management software because of the bottom line impact of sales revenue and the costs incurred in generating it, and because the onerous task of preparing quarterly numbers usually falls heaviest on their staff, which tends to be fixed in number, according to Pombriant. The process is typically managed in linked spreadsheets that can number in the hundreds.
"Certainly, CFOs are hugely concerned about what they're paying out to sales representatives for the value to the client," said Patrick Stakenas, a research director at Gartner Research Inc., based in Stamford, Conn. "It's up to the CFO to make sure the cost of sales is in line with whatever their market might be. It's not only making sure they're not paying too much, but are they paying too little and going to have a turnover problem?"
CFOs' increased involvement in strategic decisions is also putting sale compensation management software on their radar screens, according to Stakenas. The software can also help them comply with accountability regulations such as Sarbanes-Oxley (SOX).
IT departments have their own reasons for buying sales compensation management software. "They're finding themselves in the role where half their time is doing compensation at the end of the month," Stakenas said, adding that Gartner studies show the software can reduce compensation errors by 90%.
Sales compensation software vendors claim their technology can improve collaboration and bring the sales culture into better alignment with corporate goals. Xactly, for example, claims its software can minimize "gaming" of sales incentives, or at least ensure that whatever games are played serve the company's goals.
The analysts have mixed opinions.
"The challenge with any sales compensation plan is it can be gamed," said Rebecca Wettemann, vice president of research at Boston-based Nucleus Research Inc. "What Xactly does is reduce the likelihood that sales can game it." Besides benefitting CFOs by reducing administrative time and errors, the software helps ensure the sales compensation process benefits the bottom line, Wettemann said. "This automates that execution piece so people can focus much more on the high-level goals."
Stakenas isn't so sure. "All sales managers want to maximize the sale," he said. "I don't really hear that much -- where salespeople are truly trying to manipulate."
Pombriant sees some value in the software giving salespeople incentives to sell products that the company has made a priority or that are the most profitable. "The issue you have to confront is salespeople selling what they know, which may be older products," he said.
No one seems to dispute the claims of better interdepartmental relations. Wettemann said companies without dedicated sales compensation software often get the numbers wrong, causing tension between sales and finance. "The best way to get the sales team mad at the finance team is to short them in their check," said Erik Charles, Xactly's senior product marketing manager.
HR integration and sales compensation management
Day's compensation team is part of Ariba's sales department, where she supervises an analyst and a system administrator. "I basically support anybody that HR does not support," she said. "In most companies, my job is an HR function. Anybody that earns a bonus through Ariba is in this system," including salespeople and product support and service workers, she said.
She said it is easy to get new hires into Xactly Incent by loading their compensation contract data and setting them up with access to the system. Everyone gets a new plan for each fiscal year.
Another Xactly application, Delta (Data Management Services) is where the data in signed sales contracts -- managed on PeopleSoft -- is loaded and converted for use in Incent. The process takes a half hour for an entire week's contracts, Day said.
The finance department extracts the data from these sales contracts for its own revenue-tracking purposes, then sends the data needed for compensation payments in Microsoft Excel format to Day's system administrator, who converts it to CSV format and loads it into Xactly Incent. "It's the same report that's always been used to pay compensation," Day said. Her team also provides the accounting department with accrual data, which she said varies from actual by less than 1%, thanks to the Xactly software.
Ariba's PeopleSoft HR system isn't directly integrated with Xactly Incent. Instead, Day's team takes the payroll reports generated by Xactly that contain the payment amounts and emails them to HR's payroll managers. Before, they had to create the reports themselves, she said.
While Day acknowledges the benefits direct integration would bring, she said Ariba hasn't seriously discussed it. "We only had 10 weeks to get live to pay out 500 people and it wasn't a priority," she said. "I don't see it being a near-term thing we do. We only have another year in the existing license."
The company also uses Incent Analytics, which lets the finance department create detailed reports on expenses, for example, breaking them down by customer, contract, or sales representative. The sales compensation management software also runs the employee dashboards that provide worldwide access to individual compensation data.
Cloud, mobile, analytics trends affecting incentive compensation management
The analysts agreed that three vendors of sales performance management suites -- Xactly, Callidus Software Inc. and Varicent Software Inc., recently acquired by IBM -- dominate the incentive management segment in North America, with ERP vendors Oracle and SAP doing well selling their own sales compensation management add-ons to their installed bases. Stakenas added NICE as a major player in Europe and Israel, with 10-12 small players filling out the rest of the market.
As in most software categories, cloud computing is "taking over," Stakenas said, with the big three now primarily SaaS-based. "Everyone is moving to SaaS in one form or another; SAP not as much. They have such good on-premises applications, it's a slower migration."
The exploding popularity of smartphones and tablets is creating a problem and an opportunity for compensation managers, according to Stakenas. "I'm hearing more and more companies are turning to iPads and away from PCs," he said. Companies have a challenge of figuring out how to support the new platforms, but could benefit from apps that, for example, inform salespeople in the field about the bundling deals that are the most profitable to offer customers.
Applying analytics to local compensation data to determine the optimal mix of incentives is another emerging area for development, according to Charles. Some people are showing early success using Xactly Analytics for that purpose, and ongoing academic research shows long-term potential. Xactly is also considering offering analytics on the aggregated sales data stored in its cloud, he said.
Day's concerns are considerably less esoteric and squarely rooted in labor savings, speed and accuracy. "It was me plus five," she said. "We are now me plus two, without having any head-count reduction," because three employees were reassigned.