Incentive, Compensation and Sales Performance Management

I have been tagged by Ann Bares, who has a wonderful compensation related blog. Compensation Force is one of the first 'business related' blog I started to read regularly.

The rules:
• Link to the person who tagged you.
• Post the rules on your blog.
• Share six non-important things/habits/quirks about yourself.
• Tag at least three people at the end of your post and link to their blogs.
• Let each person know they have been tagged by leaving a comment on their blog.

So here are my 6 truths and no lie:
• My native language is French. I’m also fluent in English and Spanish. I’ve been studying Chinese/Mandarin on and off for the past 3 years but the wall is higher than I expected!
• I have a second degree black belt in karate. I have never had to use this skill in a business meeting… yet.
• I love to travel. Last year, while canoe camping in the middle of the jungle in Peru, I was attacked by two wild boars. In a prior jungle trip it’s an alligator that almost got me for breakfast.
• I play piano when I get to spend some time at home.
• My favorite book is the Count of Monte Cristo by Alexandre Dumas. I have read most of his books and enjoyed each of them, but this is my favorite.
• As my client figured out today, I can easily be bribed with donuts, chocolate and M&Ms…

Here are some blogs I read regularly, in no particular order:

Think IT Services by Jeff Kaplan
Passion, People and Principles by David Maister
The HR Capitali$t by Kris Dunn
Incentive Intelligence by Paul Hebert
The Happy Burro Blog by Joe Raasch

And of course, don't forget to visit Compensation Force.

It seems to be a good year for Enterprise Compensation Management application vendors, particularly in the on-demand/software-as-a-service (SaaS) fields. In my two previous posts I created links to press releases from Xactly, Synygy and Centive.

Today, it’s Callidus who reported their fourth-quarter results, exceeding Wall Street’s expectation. Their total fourth quarter revenues were up 4%, partly due to a 850% increase of on-demand bookings Annual Contract Value (ACV).

So far I have only talked about some of the major vendors previously identified in the 2007 Gartner Market Scope research. With the growth in the sector, it is no surprise that many software firms will try to enter this market.

A quick surfing on Google revealed several other players in this field. I have heard about a few of them and I’m sure there are many more, but here is a quick list in alphabetical order:

Authoria
EIM Software
GloCent
Halogen Software
LaserBeam Software
Salesforce.com
Strategix Performance
Success Factors
Vue Software

If you have experience with any of these offerings or any other ICM applications, please share your experience.

Xactly Hits Triple-Digit Revenue Growth in 2007

In the 12 months ended December 31, 2007, Xactly achieved a triple-digit year-over-year increase in revenues. The company also doubled its customer base -- and in doing so, has tripled its subscriber base. During the same period, the company achieved an enviable 94.4 percent customer-renewal rate, surpassing the industry average of 90 percent and underscoring Xactly's ability to deliver sustained customer value. And in March, Xactly completed its third round of financing, raising an additional $15 million to fund further expansion.

Synygy Celebrates 17th Anniversary and Announces Strongest Financial Position in the Company's History

Synygy Inc., an authority on sales performance management, celebrated its Seventeeth year in business and announced that the company is in the strongest financial position in its history. [...] This marked the third anniversary of Synygy's strategy to shift its business model to focus on providing sales compensation and sales performance management solutions to companies with at least 1000 salespeople, brokers, or agents (rather than smaller-sized companies) for a fixed subscription fee (rather than an up-front software license fee).

There was an article in the Boston Globe today regarding how Centive, a provider of software that automates the payment of sales commissions, was expecting to be profitable this year. Centive managed to turn around by selling their old product in 2006 and building a web-based application instead.

Because of major product changes, the 11-year-old company is only now seeing the financial benefits of its restructuring, said chief executive Michael L. Torto. "We grew by 100 percent last year," he said.

So you implemented this brand new ICM system, but the application takes forever to run the batch jobs. While you are waiting for the compensation results, you are pulling your hair out, trying to think about a way to make the system run more quickly.

There are many advanced tricks to optimize sales compensation system performance, but here is a very quick and easy way to (sometimes) make the transaction processing run more quickly. It’s far from being a ground-breaking method, but it is often overlooked.

Business logic uses Boolean logic; it consists of conditions, separated by “AND” and “OR”, with a few sprinkled brackets. The order in which the elements are being evaluated is critical for the batch performance. The application will usually “read’ the equation from left to right.

For example, if we check that CONDITION A OR CONDITION B are true, the application will try to find out if CONDITION A is true, and if it can’t find what it’s looking for, it will move on to see if CONDITION B is true.

Optimizing OR
This means that when using an OR expression, it is preferable to try to put the condition the most likely to be true first. In this example, if CONDITION A is true, the application will not even need to check if CONDITION B is true.

Optimizing AND
For an AND expression, it works the other way around. Since both conditions need to be true, it is much preferable to put the condition the most likely to be false first.

Of course, to be able to achieve good results with this method, it is important to know if each condition is more likely to be true or false… it is also important for this likelihood to be as disproportionate as possible.

And putting Or and And Together:
Here is a slightly more complex example just to put in practice what I’m describing. If we are checking that CONDITION A is true, or that CONDITION B AND CONDITION C are true.
A OR (B AND C)

I would write the logic in this way if A was very likely to be true. Otherwise I would write the rule as (B AND C) OR A. I would further tweak this formula if I knew the likelihood of B and C to be false.

This is a bit confusing at first, but it will make complete sense with some practice.

Sales performance incentives are relatively straightforward to figure out. At the simplest level, sales incentives are calculated by determining sales targets, measuring sales performance, and rewarding employee for their performance against the objectives.

However, performance-based incentives are harder to figure out in areas not involving sales. The key ingredient for incentives to work is to define MEASURABLE objectives.

There are other areas beside sales, where it is also possible to define quantifiable metrics. For example, for an employee working on an assembly line , we could measure the number of units manufactured in a certain period of time and the defect rate. We could measure the number of items shipped on time for a postal worker. We could also measure the response time and the number of complaints per call for a customer service associate.

The Harvard Business School created some of the best performance measurement articles and videos [UPDATED Apr 22, 08] I have found on the Internet. They focus more on enterprise performance measurement versus individual performance indicator, but some of the topics could offer good ideas for measurable goals.

Before implementing an incentive program, it is important to understand how affected employees feel about the planned metrics. In some cases, bad metrics could result in effects opposite to what was intended and lower moral!

In my next posts I will discuss some of my personal experiences with incentive compensation.

I was trying to find out more quantifiable information regarding the Return on Investment achieved by Incentive Compensation Management systems and finally found an interesting story: Telus – How to achieve ROI.

The article is already a bit over a year old, but it describes how Telus, a major Canadian telecom company, achieved positive results with a new ICM solution. The benefits stated in the article include:

• reduced incentive overpayments by 60 percent;
• recovered 52,500 days of selling time;
• cut incentive management administration costs by $560,000 annually;
• reduced compensation error rates 53.6 percent; and
• cut average dispute resolution time from 40 to eight hours.

You have probably heard before how important it is to plan a software solution before beginning its implementation. If nobody told you, here it is: it is EXTREMELY important to plan before you implement. That’s a rule applying to every software development and integration. What do I mean by plan exactly; well one major facet of planning that is often overlooked is the documentation of the project. The biggest challenges with documentation is that the documents often get out of date, people often see documentation is an overhead and a waste of time and money, and project managers may lack experience in implementing applications and don’t know which documents are required.

I am including here a list of some of the documents you should be asking for if they are relevant to your project:

Business Requirements
This document defines all the requirements of the application; everything that the application needs to be able to perform. This is important because acceptance testing is based on how the application performs in relation to its requirements.

Technical Requirements
This document defines technical requirements for the application such as security, response time, etc.

External (functional) Design documents
These documents are probably the most important documents of all. They describe how the application works, what it does, the logic involved, flow charts, and all elements (rules, formulas, lookup tables, rate tables, hierarchies, etc) used to implement the compensation plan.

Internal (technical) Design documents
These documents elaborate on the functional design documents and describe technically how the application will work. Programmers use the technical designs to develop the application. The level of detail should be such that the programmer’s role is only to code what is specified in the document, leaving little for the imagination (i.e. variable names, database objects, etc should all be specified).

Change Request document
It is important to obtain all change requests since the initial requirements in order to understand the current state of the application.

Quality Assurance Plan
This document describes in detail how the application is being tested. It illustrates how different test phases will be performed. Some of these phases include unit testing, system testing, integration testing, and regression testing.

Test documents
Test documents consist of detailed test plans for each test phase described in the quality assurance plan. There should be detailed steps on how to perform every scenario being tested. Test data used for testing should also be provided and documented

Programming/Customization guidelines and standards
A set of guidelines, rules, standards and best practices used when developing the application should be provided.

Data models of databases
The data model shows the relationship between all database tables and attributes. In the case of the implementation of a packaged solution, all custom tables and custom fields should be documented.

Data Dictionary
The data dictionary should include a precise definition of data elements, user names, roles and privileges, Schema objects, Integrity constraints, stored procedures and triggers, and general database structure. In my opinion this is one of the most important document in a project with a heavy data integration component. The definition of the data elements should explain what the element is, where it comes from, how it is generated, what is its general structure and type, list exceptions, etc.

Deployment Procedures
The deployment procedures document describes the method for deploying the application. In the case of a packaged solution, it should list the correct files and versions to deploy, as well as any dependencies or order requirements.

In previous posts I have mostly discussed financial incentives to sales performance. Other firms use other non-cash incentives. As the title of this post suggests, this story is about Visa’s approach to Incentive Compensation.

Rather than talking about how it uses incentives to increase its employee’s performance, the article describes the methods used by Visa to accelerate the adoption of rules for credit card safety, to encourage merchants to stop storing credit card data.

Visa’s approach is to financially reward compliant merchants, while at the same time fining non-compliant merchants. They also offer better rates to compliant service providers.

The Visa article can be found here. MasterCard has its own programs, as do other credit card companies.

It is no secret that a Compensation Management System is a significant investment. In the case of a SaaS solution, a fee per payee will become an on-going operating cost. In the case of an on-premise solution, license purchase, hardware and system integration fees will consist of the bulk of the initial cost, followed by related operating costs to keep the system running.

I collected a fact from a Gartner research for which I have lost the reference: “On average, companies that don't use information technology to track payments from customers overpay their employees by 3 to 8 percent of their bonuses and commissions.”

One of the difficulties encountered when calculating commissions in some manual form or with an archaic system is that it is often challenging to process returns. When returning items, the commission for these returns should be taken back from the sales person. The task is even more complex when dealing with partial returns, where several items where purchased and only a fraction is returned; in such a case, only a part of the commission should be removed from the original sales person. A good Sales Performance Management application should be able to perform this type of calculation without too many difficulties.

The actual return on investment depends on the implementation cost, the quality of the existing system, time savings with the new system, the amount of commissions paid incorrectly (and above what they should be) without an ICM solution, as well as other factors.

From what I have seen, the Return on Investment promise is real and not just a marketing trick... But remember that when considering a sales performance solution, the ROI should also take into acount the sales performance improvements due to more accurate and timely incentives.

Here are a few articles related to Return on Investment in the ICM space:
ROI Study Report: Sales Performance Management Solutions
Building a Business Case for EIM
Gartner Survey

Callidus Software just acquired Compensation Technologies, a leading provider of services for planning, implementing and supporting incentive compensation processes and tools. This acquisition adds 9,000 payees to Callidus SaaS business; the cumulative number of payees is now 44,000, up from 4,900 a year ago.

Today my client asked me if I could take the content of an Excel spreadsheet, and export it to a text file in a very specific format. It needed to follow this format to be imported and interpreted properly by other applications. I said the task would be done quickly, before realizing that the spreadsheet had about 10,000 rows, containing complex sales transaction and compensation information which would need to be edited significantly.

When dealing with fixed field length formatted text files, text reports and mainframe files, it seems common that we need to edit something. For example it could be an ID which changed format from 8 to 9 digits and requiring a leading '0'. It could also be fields need to be moved around in the file.

To avoid some headaches and save a lot of time, do yourself a favor and download TextPad. TextPad is a simple (FREE) text editor for Windows which allows you to perform simple but powerful tasks.

TextPad offers th TextPad allows you to do vertical selections.

The image below illustrates what I mean by vertical selection.


By holding down the "Alt" key, and performing a "Click and Drag" just like when selecting text from left to right, you can select text from top to bottom.

As I said, I could select the entire Last Name "column" in this fashion, cut it, and paste it before the First Name "column". I could also select the first character of the first column and delete them entirely. Finally, if I needed the ID here to be 8 digits intead of 5, I could add manually the missing zeros, copy a few rows of those zeros by using the vertical section, and paste them before the location in which you want them to appear.

Again just to illustrate this these would be the steps to insert characters before a column:

• Insert manually the zeros for a few rows

• Select the zeros using the vertical selection method

• Click on copy or press "ctrl-c"
• Place the cursor where the new "column" will appear (in this case just before ID 0070)
• Click on paste or press "ctrl-v"

As you can see, the 2 following rows following 0000017 and 0000023 get the coped "000" appended to them.

That's all there is to this trick, but hopefully it can, as it did for me, save you countless hours of editing large compensation files row-by-row.

One of my reader sent me a link to a funny video clip created to market Centive Compel on YouTube. It's a song about a "sales guy" and a "finance guy" having... well some conflicts. It could be a good icebreaker before a dry ICM meeting. Click here to view this Compensation Management clip.

In case you haven't notice, I added FeedBurner to this blog; FeedBurner will enable you to view my incentive compensation management blog as an RSS feed (for example my blog entries can easily be delivered to your Google customized home page).

Feedburner will also have the possibility to subscribe to my blog to receive each post in your e-mail automatically. Hopefully this will make it easier to read me, without having to constantly check the blog for updates.

To get started, click on the "Subscribe in a reader" or enter your e-mail in the text box and click on "Subscribe". These links are located on the right hand side of the blog, below the "View my profile on LinkedIn" button, and above the "Links" section.

An ICM Solution won’t solve all your Problems… This may sound like a strange statement coming from a compensation consultant. The truth is that many compensation management application vendors often pitch their product as being a solution for all compensation related issues; while it is true that a solid ICM solution will provide the right tools, these tools alone are not enough to warrant success.

The right people will be required to customize, implement and manage a compensation solution. Even in the case of an on-demand solutions implemented by a vendor, the right people will be required to communicate the requirements and to manage the system. If incentive compensation is new for a company, someone will need to be able to answer questions from payees (employees receiving the incentives). If the ICM solution replaces a home grown system, a spreadsheet or some other solution, there will be a learning curve for everyone involved; the ICM team will need to learn new tools, and payees will need to understand new reports and the impact of incentive compensation on their total compensation package.

Also, clients often fail to understand that their initial problems are usually not only caused by a bad solution; the root cause of the issue is usually bad processes. Those processes are often poorly documented, and the associated knowledge and expertise lost. To be successful with a new compensation system, it is important to understand existing processes, understand how the ICM solution will impact those processes, and more importantly, be able to adapt and accept process changes.

In 2000, I started to hear predictions that Software as a Service (SaaS) would eventually replace conventional 'enterprise' applications. The idea was slow to catch on, but we finally see more and more on-demand applications emerging.

Today, the Silicon Valley Business Journal had a news release regarding Callidus' Financial performance.

Without discussing the actual company performance and the resulting effect on its stocks, what is interesting to note is that Callidus did notice more on-demand.. demand, and less demand for its Enterprise applications.

"We are announcing preliminary financial results today which reflect a record level of on-demand sales activity but a disappointing level of perpetual license revenues," said CEO Leslie Stretch. "While there was a good level of overall activity in the business, it was skewed towards on-demand as perpetual license sales were lower than expected."

I haven't made any predictions for 2008, but if I had to, I would have to finally agree with everyone saying that the age of SaaS has finally arrived.

If it was determined that the in-house implementation of your incentive management system was not ideal, the choice of your implementation partner will make the difference between success and failure. A solid team will insure a successful delivery of the system on time and on budget; a poor team will cause the project to run beyond schedule and over-budget. An experienced implementation partner will also be able to assist in making the optimal solution decision.

There are 3 different situations that can be considered:

• Hiring a large IT/Management consulting company such as Accenture or IBM.
  
• Hiring a smaller/boutique consulting firm specializing in Sales Performance Management and Incentive Compensation Management
  
• Hiring individual contractors
  

Each of these approaches also offers several advantages and disadvantages.

Large Consulting Company Pros:
Large consulting companies...

• are likely to have implemented the chosen solution several times
  
• will be able to leverage deliverables from several past clients
  
• will have learned considerably from past successes (and failures)
  
• will usually be able to leverage an established and proven method,ology
  
• will be able to pull in the appropriate resources at the different stages in the project, and increase or decrease the head count as required
  

Large Consulting Company Cons:
Large consulting companies...

• have many consultants with limited experience; with a typical fast career track, consultants are promoted into management roles without having mastered a technology.
  
• The ‘doers’ on the team are often fresh out of college and may have no previous compensation management experience (or even IT experience)!
  
• have bigger overheads; as such, the contracting fees are also typically higher.
  
• may not undertake a project if it does not generate at least a million dollars in revenues.
  
• are large because it operate in several IT sectors, across several industries, in several countries. The actual compensation management practice may not have a greater headcount than a specialized company.
  

Boutique Consulting Firm Pros:
Boutique consulting firms...

• usually focus on a niche market – several companies focus on sales performance system integration. Some companies even focus on the integration of a specific solution
  
• really care about their client’s satisfaction – their reputation is everything to them
  
• will also be able to leverage deliverables from past clients
  are also likely to have implemented the chosen solution several times
  
• will usually have more seasoned technical experts
  

Boutique Consulting Firm Cons:
Boutique consulting firms...

• may be less “stable” than larger well established company
  
• don’t have a brand name to sell to management
  
• may have issues to replace their consultants if team members become sick or leave
  
• may not follow a methodology
  

Individual Contractors:

Contracting individuals is a great way to supplement a team with experts. These individuals will be able to bring a different perspective to the table to assist the in-house team or integration partner in the system design and integration.

The choice of a small or a large implementation partner really depends on the specific situation. Having worked for both a large consulting company and a small consulting company, I would say that the value for the money of hiring a smaller company is better. However a small consulting company should be selected with great care!

The bottom line:
Whether you choose a large consulting company or a small boutique firm, ask for references, make sure they have plenty of relevant experience, find out if they have relevant certifications, and ask yourself if you can trust them.

If you have had good or bad experiences with different types of consulting partners, please share your thoughts!

I came across an interesting article describing 3 popular web-hosted Sales Compensation Management Applications (Callidus TrueComp, Centive Compel and Xactly Incent). The article Tech Solution: Sales Compensation Management was published in DestinationCrm.com.

I briefly described those products earlier, but the article is adding some pricing details which I was unaware of. Being a consultant, I have always worked on on-premise implementations which are much more expensive.

Here are the price figures mentioned in the article:

Callidus TrueComp: TrueComp On-Demand starts at $50 per user per month
Centive Compel: Compel has a tiered pricing and a maximum fee of $50 per month
Xactly Incent: Incent subscription fee is $50 per user per month

As we can see, the pricing is nearly identical for each of the application. Functionality, ease of implementation, proximity and availability of consultants, etc will be the determining criteria in making the right choice.

In-House Development Pros

• Build and maintain knowledge in-houseLower maintenance costs in the long term
  
• Lower implementation for future releases
  
• Lower perceived development costs (pay salaries vs consulting fees and associated travel expenses)
  

In-House Development Cons

• Potential longer development time
  
• High training fees and long learning curve
  
• Complexity of project could be underestimated
  
• Project scope, timelines and expectations may be exaggerated
  
• No extensive prior experience increases risk
  
• Staff may not be available to be dedicated to project
  
• No previous deliverables to leverage
  
• Outcome of implementation is impossible to predict
  
• Incentive Compensation is not the core business of the organization
  

Obviously, the greatest advantage to hiring an experienced team to perform the implementation is to increase the odds of meeting the objectives and to decrease risks associated with a complex implementation. On the other hand, the major draw backs are that the knowledge acquired while building the project could leave along with the consultants, and the implementation costs may appear to be higher.

Different circumstances could make the balance lean in one direction or in the other, and a lot of information regarding the merits of either approaches can easily be found online.

My 2 cents is that a team consisting of consultants working on-site, along side with an in-house team who will eventually 'own' the system could be the best of both worlds.

My next article will include some tips on choosing an implementation partner.