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Incentives – when Close Enough is not Good Enough

As a sales organization, finance group or HR department, can you quantify the value of variable pay for company employees? While more and more companies are moving to one type of variable pay or another (commissions, bonuses, rewards, etc.), more often than not, our experience confirms that most managers and executives agree with the practice; but few can accurately demonstrate or quantify the exact value it produces.  Have you ever wondered how something that can cost upwards of thirty to thirty-five percent of company revenue is left to be more of an art than a science? As we conduct analyses of current compensation plans to assist clients to improve upon them, we are regularly uncovering a common perspective that close enough is good enough.  Most organizations have a pretty clear handle on the loaded costs associated with an employee; but when it comes to incentive awards, new clients are continually surprised by what our analysis uncovers. In one case, a client (which is no longer in business) had never thought to question the stock transaction information it was being provided by a large bank.  This transaction data was used to calculate broker incentives.  What it had not been able to determine, however, because the data being imported from the bank was so convoluted and inaccurate, that its incentives weren’t even based on fact from the beginning of the process.  Regardless of how aggressive its incentive plans were, they ultimately had no impact on the performance of the brokers; because incentives were based on erroneous information. After automating its incentive processes, another client uncovered within the first pay cycle that its new, high-profile sales strategy was actually failing rather than succeeding.  It faced two immediate problems: 1) The strategy itself had been based on seriously flawed sales data; and 2) It had actually been incentivizing its sales reps to act directly against the company’s best interests! While sales is more of an art than a science; the cost-benefit equation that should be applied to determine the effectiveness of the art is pure science.  If you are in a position where you bear some responsibility for your company’s profitability, consider transforming the “close enough is good enough” perspective to “what we don’t know could be costing us” point of view.  You may uncover some valuable information that could change the way you do business. Alan Marrott CEO, Glocent Inc.

Transparency at the speed you do business!