IBM Software

Business Analytics

Conversations on
incentive compensation
The changing role of finance in pay for performance

Sales Performance Management

Conversations on Incentive Compensation

The changing role of finance in pay for

performance functions
As companies reevaluate their compensation strategies in order
to adapt to changes in the economy and business landscape, a
broader view of pay for performance is being considered
across business units. No longer just a function of sales,
optimizing performance is becoming a priority consideration
of finance. With a keen eye on margins, finance requires close
collaboration among business units to keep costs and sales at a
steady pace and pay for performance modeling provides a
ripe opportunity to address the Chief Financial Officers
(CFOs) growing need for strategic planning.
A recent research report, Managing Sales Incentive
Compensation Amid Uncertainty, released by CFO Research
Services reveals that finance executives are taking a keen
interest in how their companies can incent sophisticated sales
behaviors.1 They are exploring things like team selling,
cross-selling, as well as tying incentive compensation to
more complicated metrics like profitability, customer
satisfaction and repeat business. CFOs are no longer focused
on the top line results of their sales team; instead, they are
developing sophisticated incentive plans that can motivate
behaviors in a complex, competitive business environment.

Conflicts between finance and sales

Complicated sales compensation plans can lead to unexpected
outcomes. Celina Rogers, Director of Research for CFO
Research Services, explains, If an outcome is something you
expect, then its something by definition that you have planned
for maybe you could make improvements, but you are not
caught off guard. Its a different thing to be caught by surprise
by something you didnt expect to emerge from your plan.2
The research report reflects this dilemma and especially
underscores the problem of an outsized payment for a larger
than-anticipated deal. We have heard of sales people landing
very large deals, and receiving comp payments that are larger
than the Chief Executive Officers (CEOs) salary by a
multiple, Rogers adds. Unexpected sales outcomes can disrupt
those delicate balances that finance works so hard to strike
between the cost of sales, revenue, and ultimately, profitability.

The current economic climate is also exacerbating the

tensions between sales and finance relative to compensation
plans and payouts. With mergers and acquisitions activity
increasing, new product innovations hitting the street, new
regulatory requirements and more complex distribution
arrangements, the world is becoming more complex. Add to
that an accelerating pace of business and an increased need for
speed as well as an environment where revenues are flat to
slightly declining, the challenges can seem insurmountable.
Finance wants to change sales plans to pay on margin, while
traditionally this has been done based on revenue or orders.
Furthermore, finance favors self-service reporting and
analytics that keep costs low and empower end users. However,
this is in conflict with saless desire to increase customer face
time and reduce administrative responsibilities.

Bridging the gaps

To bridge the gap and resolve the conflicts between finance
and sales, leaders in business, units must sit down and talk to
each other about their challenges, needs and environments.
After a path is chosen, it will be some sort of compromise that
communicates goals, expectations, resources and timeframes
for change. Finance should have a seat at the table with sales
when addressing compensation plans. They have a great
reputation and experience base to help in analytics, reporting
and compliance. It is also high on the list of requirements for
improving incentive compensation processes. This is a great
way for finance to be part of the solution.
The survey results also highlighted the role of technology
in bridging these gaps. 75 percent of the respondents using
incentive compensation solutions say that it has substantially
or somewhat contributed to effective sales incentive
compensation management.3 Effective technology solutions
can enhance transparency, speed and visibility while managing
and modeling sophisticated plans and payouts. This is a
win-win for finance and sales as the needs of both business
units are integrated in a seamless manner.

IBM Sof tware

Building for the future

About IBM Business Analytics

The future will likely witness plans that align pay for
performance strategies with desired sales behaviors, and
these incentive compensation management processes may
very well be the shared responsibility of finance, human
resources and sales.. Sales compensation as a business process
has expanded in perception from being a simple system
through which sales people are paid accurately and on
time to a set of processes that:

IBM Business Analytics software delivers data-driven insights

that help organizations work smarter and outperform their
peers. This comprehensive portfolio includes solutions for
business intelligence, predictive analytics and decision
management, performance management and risk management.

Align sales behavior to corporate goals and strategies.

Mid-course, correct and help ensure swift redeployment.
Enable sales management to have the information they need
to analyze their business and make fact-based decisions
versus gut-feel decisions.
Give sales people trust in their commissions process so they
spend more time selling and less time shadow accounting
Still accurately pay sales people on-time.

The prospects for the future can be brighter with the

introduction of new, cutting edge technology solutions that
allow for the sophisticated management of complex sales
compensation plans while maintaining visibility, transparency
and speed.

Business Analytics solutions enable companies to identify

and visualize trends and patterns in such areas as customer
analytics that can have a profound effect on business
performance. They can compare scenarios; anticipate potential
threats and opportunities; better plan, budget and forecast
resources; balance risks against expected returns and work to
meet regulatory requirements. By making analytics widely
available, organizations can align tactical and strategic decision
making to achieve business goals. For more information, see
ibm.com/business-analy tics.

Request a call
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March 2014
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1 A report prepared by CFO Research Services in collaboration with
Varicent, an IBM Company, Managing Sales Incentive Compensation
Amid Uncertainty, March 2010
2 Ibid, March 2010
3 Ibid, March 2010
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