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.