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
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.
|| An Overview of the Sales Force Organization with mySAP
To build and maintain rollup structures,
three steps are necessary:
- Create organizational units, e.g., a sales department.
- Set up positions within a department.
- 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:
- Determine participants (or “business partners”)
and their levels of participation.
- 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.
- 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.
- 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
|| 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
Incentive and Commission Management results
are also extracted into SAP Business Information Warehouse (SAP BW), resulting
in almost unlimited reporting options.
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
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.