Sales compensation management simplifying the sophisticated

The market for sales compensation management technology is taking off, according to Gartner. Compliance, SaaS and complexity are driving the trend.

Managing sales incentive plans is becoming increasingly difficult for companies as selling models, team selling and partner channels confuse the issue.

Two years ago at IronPort Systems Inc., an information security firm preparing to go public, two people using an Excel spreadsheet to run compensation for roughly 200 sales representatives worldwide was not going to last.

"As we were preparing to go public, those documents around securing compensation, the ability to forecast the data accurately and the data based on compensation became critical," said Jeff Williams, vice president of North American sales for the San Bruno, Calif.-based company.

Seeking a solution, executives in IronPort's operations, sales, finance and IT departments got together and decided to purchase an application to track sales compensation. IronPort runs a complicated sales compensation model based on sales of both hardware and software. The company turned to Xactly Inc., a Software as a Service (SaaS) vendor based in San Jose, Calif., to provide the technology.

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"We collectively got together and realized with the existing application, there was too much shadow accounting," Williams said. "Our costs were accelerating."

Increasingly, companies like IronPort are investing in technology to organize their sales compensation systems. In fact, the market for sales compensation management software is seeing a healthy rebound, according to a report from Gartner Inc.

Sales is selling

After a recent downturn, the sales compensation software market is now growing 15% year-over-year thanks to hosted software, SaaS and new modeling and analytics functionality, according to the Stamford, Conn.-based research firm. That market growth results in large part from the fact that few businesses have any kind of packaged compensation management application and instead are relying on Excel spreadsheets and homegrown applications, much as IronPort did in the past. Only 5% of sales organizations have deployed prepackaged applications, according to Gartner's MarketScope for sales incentive compensation management software.

"If you look at the market right now, what most people are still practicing today is getting calculation engines in and getting it right or just getting access," said Michael Dunne, research vice president with Gartner. "Interest is emerging with modeling and analytics. Businesses get more of a sense of control, command, what might be working [and] what might not be in terms of incenting behavior. It's helping people smooth out their selling quarters."

Many companies' existing, homegrown incentive compensation systems are up to 10 years old, and the people with the skills to manage them are "literally leaving out the door," Dunne said.

Compliance was a major incentive for IronPort as it sought to get a firm handle on sales compensation in preparation for an initial public offering (IPO), according to Williams. The IPO never actually happened. The company was acquired by Cisco Systems in June for approximately $830 million in cash and stock. That the company was running its incentive compensation on an SAS-certified system that integrated with its Salesforce.com CRM system was attractive, nonetheless.

"That was an enormous win," Williams said. "Even when Cisco acquired us, they looked at that. Security, scalability and flexibility were important. Plus, for me as an executive, I have the ability to tell my staff, the board of where we are exactly."

When to buy

Organizations with complex selling models or partner channels should begin considering incentive compensation when they reach 100 sales representatives, according to Gartner. Organizations supporting more than 1,000 payees should consider high-end on-premise or hosted applications, and SaaS offerings are appropriate for small and midsized businesses with fewer than 500 payees.

IronPort saved hiring an additional administrator with the Xactly system and has been able to improve its margins by driving productivity and trust with its field sales organization, Williams said.

According to Dunne, organizations are capitalizing on sales incentive compensation technology in IT and administration.

"That is where we're seeing people able to redeploy resources by 25% to 50%," he said. "This is one of those tech areas where you do get hard savings."

There is some confusion in the market, however. Buyers can be split among sales, finance and even IT, Dunne said. Also, as SaaS-based niche vendors emerge, ERP and CRM suite vendors are eyeing the potential market as well.

"That's probably what's helped give some borders and protection to this market," Dunne said. "You've had vendors with back office move in, CRM vendors move in. For the suite vendors, it's taken a while and there have been many missteps. This is not a place that easily got merged or incorporated into other systems."

There's also a convergence of sales compensation and corporate performance management with sales performance management and analyzing quote and territory management.

"There's a lot of big momentum going into next year," Dunne said. "That triangle of issues that matters to sales -- what are my targets, what do I sell, what do I need to sell to get paid? That will have a big impact on purchasing patterns, and that will lead to sales. CPM does some great things, but then you're at the water's edge and you're back to Excel again."

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