Exceptions in ICM Operations: When do they help? When do they hurt?
Incentive Compensation Management in Sales Operations can be the strangest of corporate beasts. Sure, it’s a cold, hard, financial problem, but it’s a soft, squishy, psychological one too. You are using money or other rewards as a lever to try to modify the behavior of your sales people, but the lever isn’t applied directly to the behavior. At best, you pay on the outcomes of the behaviors after the revenue recognition process and the comp plan terms and conditions have been applied.
What this distinction can lead to is the need to make exceptions to the rules when the right behaviors haven’t led to the right results.
The most obvious example of this is when the economy crashes and burns. The collapse of the Asian economy in the late ‘90s caused comp plans to be rewritten, quotas to be slashed, and drastic measures like guaranteed incentive payments to be slammed into place to keep the sales force alive and selling through the downturn.
In this kind of situation it’s critical to do what’s “right” rather than what the comp plan says. Your sales guys didn’t cause the economic crisis, so holding them to the terms of the plan causes financial hardship to the people who made you successful the year before. You have to do what you can to keep your best reps productive until the economy comes back.
A more localized example is when Rep A lends an active hand on Rep B’s deal. The deal falls in Rep B’s sales territory, but you should absolutely give some credit (and commissions) for the deal to Rep A for the help given in landing the customer.
Okay, we all get it – ICM systems must support some level of exception-based payments. But the word “some” is important here. I’m reminded of a Comp Manager who told me that her company’s monthly process was to calculate commissions, print a report, and carry it to the VP of Sales. The VP would cross out the numbers and write in the amounts he felt like paying each rep. And that’s how much they paid.
I laughed. She didn’t. She was serious – that was their comp process. And that’s just insane. Random amounts of money showing up on the commission check each month do nothing to drive good selling behaviors. We’ve all seen comp plans with conditions like “if it’s Tuesday and a red car passes, pay an extra 25% unless we decide not to”. Do the reps really know how to behave with a plan like that? And we’ve all seen the situation where any sales rep who whines loudly enough gets to go to President’s Club, even when they haven’t earned the trip. That trip doesn’t do anything to make your company successful either.
The takeaway is that some exceptions to the rules must be made to keep the company on the right track. But some exceptions do nothing positive for the company, and sometimes can be insidiously harmful to the company’s long-term success. The comp admins know the difference, but often don’t have the authority to stop the harmful exceptions. It’s a top-down activity to make your compensation plan exceptions work for your company, not against it.
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Author: David Kelly
David Kelly is an ICM Solutions Architect with Merced Systems. He has more than a decade of experience in translating ICM business requirements into maintainable, high-performing systems for many companies across various industries. He can be reached at david.kelly@mercedsystems.com.