Technology plays a pivotal role in improving compensation plan development

It might sound obvious, but the key to a successful sales department is the management of talent. With this in mind, many companies have placed a greater emphasis on the development of incentive compensation plans. The rationale is that by making complex sales incentive compensation plans, companies will be better able to encourage sophisticated and desired behaviors from their agents. For example, if businesses are trying to sell specific products, they may offer better commissions.

However, as organizations look to develop increasingly complex sales incentive compensation plans, they are also creating other challenges for themselves. For instance, complicated initiatives may have greater administrative costs because management must spend more time on development. They also come with an increased risk of error and uncertain outcomes.

"These unexpected outcomes … disrupt companies' efforts to optimize the relationship between the cost of sales, the revenue realized through those sales efforts and, ultimately, company profitability," notes research from CFO magazine. "Even if compensation plans motivate the right behavior and lead to an increase in the right kinds of sales, companies can still miss profit targets if the cost of improving sales offsets the realized gains."

Profit remains at the center of company objectives, with 67 percent of companies noting they are focusing either "much more" or "somewhat more" on profit as opposed to revenue growth as they prepare for economic recovery. While compensation plans can be used to drive organization-wide objectives, it's paramount that sales teams don't develop systems that impede profitability.

Businesses looking to encourage specific sales habits and behaviors while minimizing bottom-line impact have turned to technology such as incentive compensation management (ICM) solutions. According to the CFO research, a number of finance executives have noted a correlation between the use of technology and the ability to execute successful payment initiatives. Seventy percent of companies that use specialized technology systems to manage sales compensation say these tools either somewhat or substantially improved the ability to execute plans.

"As finance executives prepare themselves to take on a more prominent role in managing sales incentive compensation, the results of this survey show that many will look to technology improvements to help them reach their sales performance improvement goals," CFO magazine adds.

ICM software has evolved to the point where it's no longer something exclusively used by only the largest of companies. There is no reason for sales teams to rely on general software such as spreadsheets to develop compensation plans, and if they do so, they may be open to even more risks as they create more complex strategies.