The 3 Things You Need to Know About Variable Compensation

Many Companies Are Making Serious Mistakes with Variable Compensation Management

All business leaders understand that variable compensation plans impact sales performance, but only the wisest leaders understand that the way a variable comp program is managed impacts company revenues

For savvy leaders in today’s business landscape, variable compensation management is starting to take its place in the forefront of business strategic planning. It is becoming clearer every day that how a company approaches compensation management can predict how it will perform with talent management, competitive performance, and overall market share. 

Why Focus on Your Variable Pay Setup? 

Whether you plan for it or not, your variable comp program is guaranteed to affect your business. Why? Because the sophistication in how you handle your commissions sends a critical message to your current and incoming salespeople about the level of commitment they should expect from your company as a whole. It also sends a signal about how you expect them to perform.  

Considering that salespeople are the “face” of your company and your company’s leading brand advocates, it only makes sense to ensure that they are well taken care of. We aren’t telling you anything you don’t know – this is why you have already spent so much of your time and effort crafting the best commission structure you can offer. 

Now it is time to make your variable comp plan work harder for you. These 3 little-known facts will help. 

1. Your Salespeople Will Rise to Meet Your Program’s High Standards

The way salespeople conduct themselves is often a reflection of a company’s variable comp setup. If the commission calculation process is streamlined and clear, salespeople will be able to see the direct results of their work every day and will be motivated to challenge themselves. 

Conversely, if the calculation process is hard to understand, overly complex, or hidden away in siloed spreadsheets, salespeople may lose focus or motivation. Worse, they may lose trust in the compensation package you worked so hard to create. 

Tip: Daily compensation calculations may seem impossible if your company is currently relying on spreadsheets to track commissions, but it doesn’t have to be this way. Automated software that integrates with your ERP makes it effortless to calculate commissions and splits as soon as sales documents are uploaded, track commission status based on invoice payment or aging status (and adjust for discounts), and provide personalized insight for each salesperson. 

2. Revenues Are Directly Linked to Variable Comp Management

Similarly, how well a company does is often a reflection of the effectiveness of its variable compensation program and how well it motivates its salespeople. A well-designed program focuses salespeople on activities that support the company’s business objectives and, in turn, rewards salespeople for their contributions. 

Because they are the front line between your company and its customers, and are typically the driving force of revenues, it makes sense to ensure that your salespeople can easily understand that their efforts and presentation will be well rewarded. After all, these employees have a direct impact on how the marketplace perceives your company and its products – and that directly impacts your revenues. 

Tip: Using a flexible program to manage commissions is the key to success because it often takes multiple iterations before you find your “just right” plan. Like Goldilocks trying out her options: some versions of your compensation plans will be too high, some will be too low, but finally you’ll find the one that is “just right.” That is the one that will motivate your salespeople to drive high revenues. 

For extra flexibility, look for variable comp software that handles more than commissions. Once you see how much commissions optimization helps you, you’ll also want to improve how you handle your bonuses, rebates, and SPIFFS. 

3. Transparency Sends the Right Message

Good salespeople know how to adjust pricing and packages to close a deal. Through hard-won experience, they also understand that transparent terms are often the leading signal of an honest transaction. If your commission management process is not transparent or is hard to understand, professional skepticism may kick in and leave your top salespeople questioning whether they’re “buying into” the right company.

Make no mistake: your salespeople are spending their working hours calculating their commissions. Not only is this a waste of time that could be spent boosting sales for your company’s products and services, it also leads to calculation errors that can be difficult to rectify.

As you know, a lot can happen between when a deal is closed and when a commission is released. Service discounts, late payments, logistics or production issues, and changing order quantities can all impact commissions – which is why it is better to keep all the changes out in the open and immediately visible. 

Tip: It’s a smart idea to automate commissions calculations so that they are automatically figured as sales documents are updated. This keeps the compensation management process transparent and easy to understand because it directly ties sales docs to commissions. And, it enables to track their progress against revenue goals accurately.

How Does Variable Compensation Software Help?

Let’s face it: calculating variable comp can be a time-consuming hassle if you have to do it in Excel. Spreadsheets make it all too easy to overwrite existing cell data and lose critical numbers. You and your accounting staff may not notice errors in your spreadsheets immediately, but your salespeople certainly will. This is likely to lead them down the spiral of constantly double-checking your numbers and perhaps even questioning your company’s ethics. Eventually, this may lead to the loss of a top salesperson and revenues – all because of an innocent typo on your part!  

This kind of problem is what keeps business leaders awake at night. 

Instead of worrying about missing spreadsheet data and its expensive consequences, you can avoid the stress by relying on an ERP-integrated variable compensation software solution. When you automate your accounting and administration tasks for commissions, rebates, royalties, bonuses, and SPIFFS, you will eliminate manual errors and provide the Finance department and your salespeople with instant, constant insight into their commissions. 

It’s time to re-evaluate your variable comp process and eliminate the hassle of laborious calculations.

Contact the Variable Compensation Experts
at EthoTech

Since 2002, companies across every sector have relied on EthoTech for the right tool for tracking, calculating, and paying variable compensation. We provide solutions, integration, and support that is focused solely on integrated variable compensation software for Microsoft Dynamics GP and Microsoft Dynamics 365 Business Central. It’s all we do, and we do it better than anyone.

Want to know if your company would benefit from variable compensation software? We developed this simple matrix to help you discover if variable compensation software is right for your company.

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