shadow accounting"What would be some key positive outcomes,” I asked in a client interview during a process optimization project this week, “of creating a new process?” Notable responses included, “To help the sales reps spend less time figuring out if they are getting paid on all of their deals and getting paid correctly."

Pressed further, the compensation administrators spoke of having to reconcile their results with spreadsheets created by individual sales reps. They described a manual time-consuming process of which they had essentially lost control. Hardly shocking, as I’ve heard similar at almost every company I’ve worked with in the past 15 years—something industry people have labeled “shadow accounting.”

By definition, shadow accounting is a system where separate, independent sets of financial results are created to try to find errors and mistakes. In finance, this isn’t necessarily a bad thing, and some accounting firms provide shadow accounting administrative services for their clients. In the world of sales compensation, however, when this practice exists, we often see tracking of bookings, potential commission and bonuses at the individual sales representative level. This can be a tremendous time sink of non-value-added activity.

First, why does shadow accounting by sales representatives exist? The main reasons are lack of effective incentive reporting and distrust of the accuracy of commission and bonus payments. To minimize shadow accounting in your organization, execute on a compensation plan administration strategy that includes:

  1. Right-time information: Not necessarily real time, but as close as possible to the event. Examples include booking, preliminary calculations or estimates, and actual compensation.
  2. Right amount of information around commission and bonuses: Don’t overwhelm sales reps with too many reports. A compensation statement with the ability to drill down into details and sort and search on relevant crediting information (e.g., customers, products, verticals) is a good starting point.
  3. Right place for information: An example would be to deploy compensation statements within the CRM software—a place reps regularly look, and if they aren’t deploying the comp statement within the CRM system, it may improve usage.
  4. Right format for reports: As mobile devices, both tablets and phones, become more prevalent, reports specifically designed for these formats should be developed.
  5. Right calculations: Lastly, ensure extremely accurate and timely payments to the sale force.

The benefits of addressing shadow accounting and minimizing its impact vary widely from organization to organization and are difficult to quantify. I’ve worked with a client whose compensation administration process was completely broken, and sales representatives spent approximately a full workday every two-week pay period tracking and disputing compensation results. Quickly bringing this time per rep down to one hour per pay period inevitably gave reps more time to spend on value-added activities like selling. 

At your organization, the problem of shadow accounting might not be this extreme, but you might be surprised. A great first step is to conduct a quick informal survey of your sales force to see how much time they are spending today on shadow accounting.

Have you conducted this type of study in your organization, and if so, how much time did you find your reps spending on shadow accounting?


Topics: Justin Lane, shadow accounting, incentive reporting, compensation administration