This software should provide the information corporate executives need to improve their revenue forecasting capabilities and to strengthen decisions that affect the sales team's focus on strategy, but these are not the only considerations in a purchase decision. Software applications that streamline sales compensation processes must have the flexibility to create the programs the team chooses for the company, and then to track those programs' implementation. According to our research participants, the most important capabilities for sales compensation management software in terms of its support of activities around designing and tracking salespeople's pay are calculating sales commissions accurately (36 percent of respondents), designing sales incentives to achieve business goals (31 percent), and modeling optimal sales compensation plans (25 percent). See exhibit 4. Happily, the ability to model compensation by territory has become pretty standard in sales compensation management software. Companies can use these systems to generate sales plans based on the model, then store those plans for reference, which eliminates the danger that different individuals encounter different versions of a plan. Our research found that many organizations use spreadsheets for sales compensation management, so features that are standard in applications dedicated to sales compensation management may offer great relief to problems of scattered information.

An organization reviewing its sales compensation practices will need to link its dedicated software system to other business systems; smooth integration is necessary for streamlining end-to-end enterprise processes to support both efficiency and effectiveness. Participants in our benchmark research indicated that the systems they feel are most important to integrate with sales compensation management applications are accounting software (41 percent of respondents), sales force automation software (39 percent), and payroll software (35 percent). Addressing these integration needs is imperative for organizations trying to get away from manual integration of data, which introduces the risk of data errors and takes extensive employee time.

Sales Compensation Management Under Scrutiny

Every organization that relies on a sales force to generate revenue should take steps to evaluate both the efficiency and the effectiveness of its sales compensation management processes. By ascertaining its strengths and weaknesses in this area, a company can focus its investment of money and manpower to ensure that sales activities are aligned with corporate goals. The following five steps are key to ensuring that the company makes smart decisions:

Assess your organization's maturity in compensation management. Ventana Research assesses organizational maturity using a four-level scale. In our recent benchmark research, we found that about one in four organizations (27 percent) has sophisticated sales performance management systems that place it at the most advanced, “innovative” level of maturity. This means that three-quarters of organizations must do more to become mature. We advise an assessment of the maturity of your people, processes, information, and technology to determine where you can improve sales compensation management. (For more information about maturity assessments of your sales organization, see www.ventanaresearch.com/spm.)

Understand what you really need. As part of your assessment, make sure you understand what capabilities and information everyone involved — from management to sales reps — needs from sales compensation management. This will help you determine what you need in software. Sales compensation management applications differ in their strengths and weaknesses. For example, some are better at managing variable pay, while others have better analytic or forecasting capabilities. Clearly defining your business, user, data, and technology requirements will help you to identify your unique needs.

Plan a successful program for sales compensation management. In our research, we found that making improvements to sales compensation management software applications is widely seen as an important step toward addressing companies' overall operational and performance needs. The belief in the importance of the sales compensation management process and the lack of confidence in companies' existing methods are two compelling reasons to build a plan for optimal management of sales performance. Enlist sponsors from finance and executive management who will support the required investments and provide organizational leadership for the program and its goals.

Clarify and emphasize the benefits of investments in sales compensation management. An investment in sales compensation must satisfy the needs of salespeople, while also addressing those of professionals in operations and finance. Our research participants told us that the benefits they seek most are increasing revenue and profitability (70 percent of respondents), improving the efficiency of sales processes (54 percent), and aligning the sales force to the business's strategy (52 percent). Using these benefits as examples, determine what new sales compensation management processes or software offer your business, then build a plan that will deliver those improvements.

Invest in sales compensation management to increase effectiveness and efficiency. Our benchmark research identified a disturbing disconnect between, on one hand, the need to improve an organization's processes and confidence in sales and, on the other hand, the small number of businesses that have deployed sales compensation management software. As you investigate your options, consider approaches such as software as a service, which can reduce the time and cost of deploying this type of application. Do not expect that the capabilities you need will be available within your sales-force automation system; it was not intended to manage sales compensation.

Performance and Goodwill

Sales compensation management software benefits members of the sales force; it enables them to easily track their progress toward sales targets and to determine how much pay they can expect. This kind of visibility into compensation plans can improve not only the performance of individual salespeople, but also goodwill among members of the sales force. Additionally, this software can reduce the time required to collect sales and compensation information.

However, helping a sales team optimize performance through improved compensation management requires planning, and likely investment as well. Ventana Research believes the investment is justified because effective sales compensation management can be a key component in motivating the people who bring in the company's revenue. Organizations that adopt sales compensation management best practices experience improvement in both the focus and the productivity of the sales force while ensuring that the review and auditing of payments is managed efficiently. We recommend deploying a dedicated application that brings together all the relevant information and makes it available to everyone concerned with sales activities and management. A commitment to making compensation plans work as well as possible is a key step toward better overall corporate performance.

Mark Smith is the CEO and executive vice president of research for Ventana Research, a benchmark research and strategic advisory services firm providing guidance to help organizations optimize performance.