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Align Sales Incentive Plans with Changing Corporate Goals — It's Easy with SAP's Incentive and Commission Management

by Lars Wiesner | SAPinsider

April 1, 2003

by Lars Wiesner, SAP AG SAPinsider - 2003 (Volume 4), April (Issue 2)
 

To meet the business objective of any sales force — posting strong numbers, meeting aggressive sales expectations — a key to the sales organization’s ongoing success is ensuring that individual incentive plans are in alignment with corporate targets. This is no easy task. Corporate goals and strategies are under constant change, and sales channels often involve scores of internal employees and external partners. What’s more, managers often struggle with one of the most basic functions of incentive compensation plans — accurate payment of commissions in order to retain top performers.

When tackling the monumental task of tracking and reporting sales transactions and commissions, managers and administrators have traditionally relied on a collection of manual spreadsheets and homegrown applications. These piecemeal solutions typically lack the flexibility to quickly and easily adapt to changes in incentive compensation plans. Such approaches to managing incentives and commissions are notoriously inaccurate, offer minimal integration with downstream accounts payable and human resources systems, and possess few of the features that today’s incentive and commission management (ICM) systems have to offer.

ICM applications are one of the most successful tools in winning the war for talent.

SAP´s new Incentive and Commission Management solution automates these processes. Available as part of mySAP Financials, SAP ICM supports payment, tracking, reporting, and above all, alignment of corporate and individual goals through:

  • Organizational management
  • Plan design and administration features for adjustments to incentive structures and contracts
  • A robust and highly flexible calculation engine
  • Online and reporting content

This article offers a brief introduction to each of these capabilities, and how they can streamline, automate, and simplify sales team management and commission calculation for your administrators and recipients alike.

Organizational Management for Up-to-Date Views of Sales Structures and Contracts
SAP Incentive and Commission Management leverages an SAP standard: organizational management. With these features, building and shaping organizational hierarchies becomes an easy task — even frequent changes to the sales force can be adopted quickly and accurately. Sales territories are inevitably redefined and sales people reassigned; SAP ICM simplifies the process of incorporating these changes into the organizational model for accurate calculation of sales, commissions, and incentives.

SAP ICM’s organizational management features not only help managers model and view the entire organization by sales unit or territory (see Figure 1), but it also helps define responsibilities for all commission recipients (referred to in SAP ICM as “business partners”). These might include an account manager assigned to a specific customer, or an external agent or vendor who receives commissions or incentives.

Figure 1 An Overview of the Sales Force Organization with mySAP Financials ICM

To build and maintain rollup structures, three steps are necessary:

  1. Create organizational units, e.g., a sales department.
  2. Set up positions within a department.
  3. Assign a commission recipient and his or her commission contract to the position.

Updating this information often simply involves reassigning a recipient from one position to another. Changes can be adopted on a daily basis and will automatically be detected in ICM´s calculation process.

Additionally, organizational management is used within Incentive and Commission Management to automatically determine rollup participants during the incentive compensation calculation. Rollups can be performed on multiple levels.

Plan Design and Administration Features
When it comes to contracts and commission structures, Incentive and Commission Management uses a commission contract to govern the commission calculation rules between the recipient and your organization. ICM is designed with two basic types of commission contracts for maximum flexibility in making individual and organizational changes:

  • The standard commission contract represents what is often known as the incentive compensation plan. Standard commission contracts can be custom-organized by line of business, recipient group, or territory, among others. Changes in the standard commission contract automatically affect all individual commission contracts. This assures flexibility and rapid adoption of organization-wide changes.

  • This standard commission contract serves as a template for the individual commission contracts assigned to individual commission recipients. On this level, individual agreements can be implemented in line with corporate strategy. For example, compensation rules can determine that a poor valuation of company-wide goals can impact individual remuneration.

This design assures that even in a complex sales organization with numerous commission structures and individual rules, administration of incentive plans remains easy — all individual adjustments are based on the individual commission contract, while all company-wide changes are maintained in the standard commission contract.

Robust Calculation Engine
At the heart of SAP´s Incentive and Commission Management component is a very robust calculation engine, which relies on SAP’s proven “condition technique” technology to offer nearly unlimited flexibility for your model and calculation rules (see Figure 2). These four basic steps comprise the calculation process:

  1. Determine participants (or “business partners”) and their levels of participation.

  2. Determine the commission basis (“value”) of each transaction item (or “object” — for example, a sale) as an input into the primary calculation. This step assures alignment between company targets and individual goals, since poor valuation results can lead to a lower individual remuneration.

  3. Taking into account the participants, the transaction value (whether in currency or other units such as shares), and the incentive plan rules, calculate the amount of the award for each recipient.

  4. Post the commission document. Results are stored before periodically releasing results to the accounts payable or other systems responsible for disbursing awards to recipients.

The result is a highly automated commission calculation process. Manual adjustments and individual checks are also available for transactions where management authorizations or other checks are required.

Figure 2 mySAP Financials ICM Calculation Process

Online and Reporting Content
Reporting commission results to recipients and offering day-to-day insight into direct-cost-of-sales and performance of sales teams are the critical reporting features of SAP´s Incentive and Commission Management.

ICM integration with your CRM and BW applications means commission information remains accurate and can be used for business planning. For recipients, integration with mySAP Customer Relationship Management offers daily-based insight into actual and expected commission. Simulation of commission results based on opportunities is included as well.

Incentive and Commission Management results are also extracted into SAP Business Information Warehouse (SAP BW), resulting in almost unlimited reporting options.

Conclusion
With Incentive and Commission Management from SAP, you get a proven solution to manage sales force incentive compensation. ICM reduces the effort involved in effective sales force management, with easy plan administration and organizational management functionality for flexible, robust calculation features and excellent reporting capabilities.

In addition, integration is one of the major features of the SAP Incentive and Commission Management solution. ICM integrates not only with SAP Financials but also with SAP CRM and SAP BW solutions, and it connects to third-party applications as well.

For more information on SAP Incentive and Commission Management, visit www.sap.com/solutions/financials.


Lars Wiesner holds a degree in Industrial Engineering and started his professional career in 1999 in the Aerospace and Defense industry. He joined SAP AG in 2000 as an application developer for Incentive and Commission Management. As of January 2002, he is the Global Product Manager for mySAP Financials Incentive and Commission Management.

 

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