London, 8 December, 2008 – According to a survey amongst UK sales directors, companies are losing large sums of money over badly managed sales commission plans.
Almost a quarter of companies surveyed by market research specialist Vanson Bourne said they regularly saw errors of over 10% of the total commission paid – with over a quarter spending over £50m on commission annually. Another 20% said they didn’t know what errors occurred when paying out sales commissions. The survey was carried out on behalf of OpenSymmetry, an independent consultancy firm that offers highly specialised services focused on delivering Sales Performance Management (SPM) solutions to clients worldwide.
Over half of the sales directors admitted they regularly had to deal with queries and complaints from the sales force. 63% percent said they worried ‘occasionally’ or ‘frequently’ about the accuracy of their sales commissions.
The survey also found that only just over a quarter of respondents believed their compensation plans motivated and drove their sales force effectively. More than two in three said their compensation plans needed improving in order to keep up with the changing business, market or company direction.
Asked what kind of system was used to handle commission calculations, one third of the sales directors surveyed said they did not have a single system in place. Of those who do have a system in place, more than half rely on a home grown solution built by their own IT department. 12% use Excel based or other spreadsheet packages. Less than a third of respondents said they had a special, customised third party software solution installed.
The study also revealed that across industries, there is no clear assignment of responsibility for the sales compensation plans – primary responsibility was either with the sales department, finance, marketing or human resources.
And, while almost a half said they were going to revise their policies for commission payments in the context of the economic slowdown, one in four respondents also said it took more than six months to create and implement a new compensation plan.
“We are being asked more and more to assist with the sales challenge to get control of incentive costs and ensure incentive plans drive performance and behaviour. It is one of the greatest challenges in the marketplace,” commented John Stuart, business development director at OpenSymmetry.
“One of the key barriers to driving sales performance through effective compensation is often mis-alignment in the management team. CEOs need to challenge the ownership and responsibility for this important area of their business, being very aware of its direct impact on the bottom line. We also come across many circumstances where the inability to launch products directly relates to the lack of flexibility in customers’ existing systems, creating a bottleneck which affects departments across the entire organization,” he added.
Vanson Bourne surveyed 153 sales directors in the UK in companies with more than 100 direct sales representatives or other indirect channels, in the telecoms, insurance, financial services, pharmaceutical, hi-tech and manufacturing industries. The survey was carried out in November.