HR and incentive compensation management (ICM) are both critical components to onboard sellers and get them moving. Once a sales rep starts producing results you need to make sure they get paid to reinforce the behavior, and you have one chance to make sure they’re paid the right amount. On the flip side, when a sales rep leaves the company, you don’t want to pay them a commission they’re not owed. These are no-brainers, but when it comes to execution, it can be more challenging than you might think.
Unfortunately, mistakes in commissions payments often occur, especially when admins are manually calculating commissions in spreadsheets. This not only opens the door to errors, but the process is natively disconnected from human resource (HR) workflows. Even when an organization leverages an incentive compensation management (ICM) solution, organizational hierarchies, hires, and departures need to be managed and consistent in two separate systems.
Ultimately, ICM and HR systems and processes are codependent. Each needs to connect and support the other. Here are three reasons why this connection is so critical.
HR and incentive compensation management: 3 reasons the connection is critical
1. Organizational management
Traditional HR systems aren’t designed to handle the complexity that strategic selling organizations and mature B2B industries require within incentive compensation plans. Modern ICM systems fill this gap and are designed to help companies streamline highly complicated commissions payments that include accelerators, bonuses, SPIFFs, thresholds, and more.
At the same time, ICM systems operate using the same organizational hierarchy data utilized by HR systems – position, title, reporting structure, etc. Compensation plans and commissions payments depend on sales structure, and ICM systems leverage hierarchy information to properly calculate and pay commissions after a deal closes.
When a company must manage hierarchies, new hires, and departures in two separate systems, it creates organizational complexity that can quickly become a management nightmare, decreasing agility and increasing the risk of costly errors.
When an organization can manage personnel data within a core HR system and have updates automatically applied to ICM, it streamlines management and ensures accuracy of commission payments.
2. Payment processing
High-performing sales teams stay on task when they are accurately paid on time, every time. If a salesperson isn’t paid promptly, or feels they were shortchanged, they will spend more time doing shadow accounting than selling. Worse than the loss of productivity, incorrect or delayed payments erode trust in the organization, and when a seller’s faith is leadership wanes, they prepare to jump ship.
Every commissions process and ICM system natively needs to connect to a payment processing system, but often the payroll system used by HR doesn’t have native connectivity to support commissions payments, so organizations adopt two systems or create their own integrations.
Both of these scenarios increase complexity and come with risk. When payments disperse from two systems, it’s hard for finance, sales managers, and sellers to have complete visibility over total compensation, which in turn creates frustration and can fuel disputes when some incentives come from HR and others from Commissions.
When systems are manually integrated, the business needs to maintain and test those integrations every time product releases roll out; if the integration breaks and sellers don’t get paid, faith and trust in the organization can waver.
By leveraging HR and ICM systems that are connected or have native integrations to the same payment processing engine, an organization can improve efficiency, lower management costs, have a better view of total compensation, and reduce the risk of payment errors.
3. Improve sales performance
When salespeople receive accurate, timely payments tied to their activity, they will be motivated to sell and drive results.
Creating the correlation between compensation and results is a critical component for high-performing sales teams, reducing sales rep churn and increasing productivity. Many organizations struggle to create this correlation in a real way, but leveraging an ICM system to communicate attainment, key incentive targets, gap-to-goal, and competitive peer highlights fosters this mental relationship.
When an incentive compensation management and HR systems are connected, sales performance, and attainment metrics can be leveraged in HR workflows to remove subjectivity from yearly review processes and help shape key criteria for advancement.
Moreover, the HR system can tap into the performance data tracked by the ICM to identify top sellers as well as “red herrings” – sales reps who appear successful but are not actually supporting strategic goals. All of these things can be utilized by HR to improve retention, training, advancement processes, and business efficiency as a whole.
HR and incentive compensation management processes are part of a connected story within organizations. Businesses can differentiate themselves by leveraging HR and ICM systems that are natively connected, utilizing these linked touch points to increase agility, improve performance, and decrease sales attrition.