Here at Sales Cookie, we help our customers automate their sales commission program. Our typical customer spends 17 hours every week managing commissions. And guess what – almost 40% of this time is spent managing commission-related disputes and making manual adjustments!
So what can your organization do to minimize commission-related disputes and limit manual adjustments? How can you help your sales and finance team spend less time handling disputes, and more time on productive tasks?
Inquiries and Adjustments
Types of Inquiries
Most commission-related inquiries fall into one of the following categories:
- Plan inquiry – ex: a rep doesn’t understand how commissions are calculated
- Missing credits – ex: a rep expected to be credited for a deal but wasn’t
- Incorrect credits – ex: a rep expected a different amount for a deal
- Missing rewards – ex: a rep doesn’t understand why they didn’t earn a commission
- Incorrect rewards – ex: a rep believes that commissions were calculated incorrectly
Unfortunately, most organizations receive unstructured inquiries from multiple channels – email, phone, or in-person. A disorganized, multi-channel source of commision-related disputes can be a constant source of irritation and even overwhelm finance teams (or at least greatly impact their productivity).
Types of Manual Adjustments
Most manual adjustments are related to commission inquiries, and are handled by making either:
- Data adjustments – ex: update a deal’s revenue in CRM to be correct
- Commission adjustments – ex: grant an additional $100 in commission
It’s always preferable to adjust data and re-calculate commissions. However, without an automated system able to calculate commissions, it can be tempting to take a shortcut and only update payouts. Unfortunately, this can lead to problems discussed in more details below.
Minimizing Inquiries and Adjustments
If your reps don’t understand (or trust) how their sales commissions were calculated, they are much more likely to engage in various tactics such as:
- Shadow accounting – reps wasting considerable time calculating their own commissions, and then comparing their results with yours
- Pestering – reps constantly asking finance for various reports, clarifications about calculations, updates about deal crediting, etc.
- Bullying – reps putting pressure on finance to adjust commissions or using clever negotiation tactics to improve payouts
- Snooping around – reps trying to gather information about who gets paid what because they aren’t sure there is a level playing field
Here are some ways to improve commission-related transparency:
- Communicate – clearly notify reps each time your incentive program changes (with sufficient advance notice)
- Disclose – let reps understand how others in the organization are compensated (ex: make all non-manager commission plans public)
- Explain – explain how quotas were set, who set them, how commissions are calculated, and the reasons behind your incentive program’s design
- Update – provide each rep with access to a self-service incentive dashboard where they can review their progress and earned / past commissions
When humans (ex: someone in Finance) calculate commissions, your reps are much more likely to try to negotiate with those individuals – or assume that mistakes will be made. However, when an automated system is responsible for calculating commissions, those issues become less acute. Automated commission management solutions are typically perceived as a more neutral and more accurate. In addition, automation can streamline the way your organization receives and handles disputes.
Here is what automation can deliver:
- Accuracy – reps expect fewer errors because machines are calculating commissions – not humans
- Centralization – automation can standardize the way commission-related inquiries are submitted and handled
- Neutrality – reps no longer have a finance or accounting person they can bargain with to improve their commissions
- Progress – automation can provide the visibility reps need to trust their commissions, review progress, and avoid last minute surprises
- Resolution – automation can help categorize inquiries, while also helping admins resolve them by finding relevant facts (ex: finding matching deals)
Don’t Give In
As soon as your manual adjustments become more than exceptions, you’ve opened Pandora’s box. Sales reps have superior negotiation skills. They will inevitably try to negotiate if they know that manual adjustments are commonplace. Also, having to frequently resort to manual adjustments makes your commission program appear weak. Manual adjustments send a clear signal that commissions, as calculated, cannot be trusted.
So how can you close Pandora’s box?
- Re-calculate – instead of making adjustments to commissions, fix source data (ex: CRM data), and let your automated system re-calculate commissions
- Require approval – manual adjustments to commissions should be a big deal, and require meaningful approval (ex: VP-level approval)
- Redesign – most inquiries should be rejected, so if too many are accepted, it’s time to redesign your incentive program
Don’t Play “Earned But Not Paid” Games
Some organizations declare commissions as earned, but only pay them when payment is received from customers. For example, a rep could have $5,000 in “earned” commissions in January, but actual payment of commissions could be delayed until payment is received from customers (ex: in June, in July, etc.).
We strongly recommend not holding payment of earned commissions because it can increase the volume of inquiries submitted by reps. Here’s why:
- Reps typically have no visibility on cash receipt, so they’re more likely to constantly submit inquiries to finance
- Reps often have missing commissions because reconciliation between finance and CRM records is needed, but is often inaccurate
- Reps don’t feel it’s fair to declare a commission as earned, but not pay it – in fact, this is illegal in some US states
Have Clear Agreements In Place
A clear legal agreement can help minimize inquiries because it describes how commissions will be calculated, while addressing special scenarios (ex: a rep going on a parental leave). In addition, a legal agreement may prevent more serious disputes, such as those requiring legal action.
Here are some categories we recommend for any commission agreement:
- Plan objective – the raison d’être for your incentive plan
- Plan administration – who is authorized to make changes
- Plan eligibility – who qualifies for commissions
- Plan acknowledgment – how acceptance is confirmed (ex: e-signatures)
- Plan description – how precisely commissions will be calculated
- Hiring & departures – special conditions for new hires / former employees
- Leave of absence – special conditions for medical or personal leaves
- Recoupment of awards – special conditions related to claw backs
- Taxes – who is responsible for paying taxes
Commission-related inquiries (and corresponding manual adjustments) can negatively impact productivity and compromise your commissions’ credibility. Fortunately, simple strategies are available to reduce their impact. It all starts with a clear legal agreement, reasonable transparency, and a healthy dose of automation. Visit us online to find how you can manage commission inquiries and automate your sales incentive program!