Imagine, it is the beginning of your new year. Your sales compensation analyst is spending their time translating your new sales commission plans into formulas in their commission worksheets. Hopefully there is nothing lost in the translation as to what was in your head when you designed the sales compensation plans, how you expected them to work and what is being entered into the commission worksheet. Your sales reps will need to be paid their commissions soon and they will let you know if they were underpaid!
In this process your sales compensation analyst is also your sales measure crediting engine, determining who gets credit for what, how the manager will receive credit on the sales made by the sales reps in their organization and if there are any team members who will also be paid on these sales. The accuracy of this crediting is left up to your sales compensation analyst based on their understanding of how sales crediting should work. And remember, you will hear from the sales rep when they are missing credit for a sale but probably won’t hear from them if they received extra.
Once the crediting of your sales data has taken place, which means each sale has been copied to each rep’s worksheet in the current month’s commission workbook; your sales compensation analyst then becomes your calculation engine. The commission rate the sale is paid on is determined by the accuracy of the commission formula they created in their spreadsheet, which don’t forget was interpreted from the design document you provided or the signed commission plan documents you gave your sales rep.
It is like the game of gossip we played as kids, each step away from the person who designed the sales compensation plan is a chance to get something wrong. Personally I have audited many commission spreadsheets and have always found something wrong. Again, you will always hear about the underpayment but hardly ever about the overpayment. In these audits, I usually find notes in spreadsheets like the example below explaining all the exceptions. Based on a study done at the University of Hawaii by Professor Panko, 90% of spreadsheets have errors and these errors are costing you money.
In some states, like Massachusetts for example, if your employee sues over commissions and wins, you could be liable for THREE TIMES the amount of the error. The key to avoiding problems is to make sure the commission plans you designed are documented and signed by the sales rep and administered by the sales compensation analyst exactly the way they were designed. The best way accomplish this is thorough automation of your entire sales compensation plan process from design the plans, through calculating the commission and ending with commission statements for sales reps.