Sales executives have long embraced the vision of leveraging incentive compensation to drive performance within their sales teams. In this vision commissions are the reward, the proverbial carrot used to motivate reps to achieve and exceed specific revenue and performance metrics. But the gap between vision and reality is apparently deep and wide.

According to two recent surveys of senior sales and finance executives—one by Growth Solutions, an Illinois sales compensation design firm, and the other by Arcadia Solutions, a Boston sales effectiveness consultancy—some startling and disturbing statistics were revealed:

While 92% of executives believe they are calculating and paying commissions accurately:

• 72% believe it takes too long to get commission payments out—often 30 or more days after the close of a period.
• 68% believe their sales compensation systems fail to drive behavior or align their teams towards specific goals related to products and services.
• 68% described the "pain" associated with commission management as somewhere between chronic and acute.
• 87% attribute turnover of their top reps with issues related to commission compensation.

In general, companies allocate nearly 10% of corporate revenue for commission costs. Given the investment, it's astonishing to learn that more than two-thirds of the executives surveyed believe their commission system does little to motivate behavior, align their reps with corporate goals, or drive sales performance in a meaningful or measurable way. Companies are paying commissions to reps for closing sales…but not necessarily the right sales. Clearly there is a gap between the performance desired at a granular level—by product, margin, territory, etc.—and the ability of incumbent sales compensation systems to support that performance.

This gap exists because companies have relied for too long on inadequate systems for managing sales compensation. Excel spreadsheets are the de facto standard for sales compensation; they are also the most commonly attributed source of "pain" associated with sales compensation management. Survey respondents relying on spreadsheets reported significant delays in modeling and rolling out new plans each year, or modifying existing plans mid-year, due to the complex macros needed to meet plan logic requirements. Several companies reported paying draws for more than three months at the start of each year while new plans were being coded and tested.

So how should sales compensation work?

First, compensation plans should be designed so as to ensure that reps are motivated to sell in alignment with corporate product, service and revenue goals.

Then, the plans should be managed in an automated sales compensation management system that enables them to be quickly deployed and easily modified—without IT support. The system should provide transparency into the compensation process, accuracy in calculations, audit tracking of all changes, visibility into daily performance metrics, and timely reporting and payment of all commissions and bonuses.

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