Incentive, Compensation and Sales Performance Management

Many companies often wonder what the Return on Investment (ROI) of incentive compensation system is. Most articles and research on the Internet are either sponsored or written by vendors and it is hard in most cases to truly measure the savings and improved performance as a result of that new system. I asked David Cichelli about his thoughts on the return expectations of a well designed and well implemented compensation system.

David's Answer:

It’s a mystery. Since no one can conduct a double-blind test to confirm the value of sales compensation, we live in the world of anecdotes and observable behavior changes. My test of program effectiveness is the degree of “alignment” between product divisions and buyer/sales segments. The sales compensation program should ensure alignment of field efforts between these two moving parties.

What I have to say:
I talked about ICM ROI for the first time here, and discussed another story here. I agree with David that it is hard to assess if the new system is responsible for new behaviors. Taking this further, it is hard to assess whether a compensation program improves behaviors period.

However, assuming that a company does see benefits in an incentive program, the question is, will an ICM/SPM solution pay for itself. Presumably, positive behaviors are already encouraged by more labour incentive variable compensation. Real-time information, dashboards, accurate reporting and advanced analytics may help out sales people and management, but other factors are easier to quantify.

These factors are likely to depend a lot from one company to another. As I pointed out in the previous posts, some of the factors to consider are the implementation, licensing and upkeep costs, the quality of the existing system (how accurate it is), and the potential time saving to be realized with a new system (time spent calculating commissions, reviewing data, resolving issues, etc).