Compensation: a company relying on manual processes to manage variable compensation can easily end up in hot water and out of favor with employees, auditors and investors.

 
FREE EXCERPT

There are few things more important to a company's top- and bottom-line results than sales compensation. After all, sales are the lifeblood of any business, and sales compensation is the primary vehicle to inspire motivation and reward sales success. It also happens to be one of the biggest cost centers in most organizations. In fact, in the U.S. alone, companies spend more than $800 billion on sales compensation annually--three times more than the amount spent on advertising, and $100 billion more than the government spends on national defense.

Yet even as businesses turn to enterprise systems to streamline key processes and achieve better results, when it comes to managing variable compensation, most continue to rely heavily on time-consuming, manual-based spreadsheets. In doing so, CFOs are exposing their businesses to the seven deadly risks of compensation:

1 RISK OF NON-COMPLIANCE

It is on the shoulders of the CFO to ensure a company has strong internal controls. Given that in most businesses the majority of the cost structure is in salaries, variable compensation is an area demanding close attention. If finance doesn't have a good handle on sales compensation, there is a significant risk of having a material control weakness.

ASK YOURSELF: What carnage could non-compliance cause my business in cost and reputation? How do I know what impact sales compensation is having on my compliance?

2 HIGH ERROR RATES

Spreadsheet-based processes are notoriously error-prone. According to Gartner Group, managing compensation through such manual processes is subject to an error rate of anywhere between 3 percent to 8 percent. For a larger company, it might be even higher. Run those percentages against a million-$ cost center with just 10 sales reps, and it is easy to see how managing commissions on spreadsheets can end up costing a company significantly in over- and underpayments.

ASK YOURSELF: What are errors in my current spreadsheet-based system costing my business? How would I know if errors were occurring?

3 POOR FINANCIAL FORECASTING

As noted above, spreadsheets are prone to errors. Not only is this an issue in paying commissions, but also in forecasting future commissions and how they play into the overall financial numbers. In the worst of cases, this can cause earnings-per-share projections to be materially off-target, which of course rebounds on the company's stock price and the CFOs reputation. The jeopardy here is not just confined to bad...

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