iStock_000041897828SmallI was working with one of our software partners to describe the benefits of an Incentive Compensation Management (ICM) solution to a company that was interested in purchasing. After articulating the benefits of an automated software solution to help with the processing of performance, payouts, and reports, the company asked one simple question: How much money will it save us? Discussions stalled at that point.

Why?

Because the company had two people working on incentive compensation administration, each part time, using Excel workbooks.

If you consider the question of ROI on the purchase of a compensation administration platform, the basic formula is incremental revenue divided by the money spent on the system (including implementation, training, and license fees, to name a few cost drivers). This company was focused mainly on the denominator – the investment part of that equation. Given this company’s historical use of part-time and low-cost resources, it was basically impossible to justify an ICM solution without looking at the numerator of the ROI equation. Unfortunately, the organization was unwilling to accept that an ICM platform could help drive revenue.

Is this is a common concern? Perhaps, but let’s consider why an ICM platform can help the “R” in ROI.

First, consider the situation where you might only have a fractional person helping with the incentive compensation administration. In such cases, an ICM platform can provide capability beyond what is currently present. For example, consider the company that was generating basic payment statements in Excel at the end of each quarter. Implementing an ICM solution allowed this company to publish monthly scorecards with more insightful and actionable information. I call this capability building - an ICM solution allows companies to do things they could not previously do.

Second, consider the situation where you spend a lot of time processing your incentives. I speak with many companies that want to focus more time on the strategic or incentive plan design parts of the sales compensation plan and less time on the administrative and tactical outputs. In these cases, and often with the same resourcing levels, you can gain efficiencies in administration through the use of an ICM platform and re-purpose some of those people into other tasks that could use more focus.

In these two cases, it would not be hard to imagine how revenue or the numerator in the ROI calculation could improve. A purpose-built tool allows you to do something better than you’ve done it before – even if that something is tangential to the administrative processing!

This is clearly an oversimplification of the calculation of ROI for an ICM solution, but I would love to hear other justifications you have used.

Topics: sales compensation, Incentive plan design, Incentive compensation, incentive compensation management (ICM), Steve Marley, compensation administration