SAP White Paper
        mySAP ERP




SAP® INCENTIVE AND
COMMISSION MANAGEMENT
WITH mySAP™ ERP
© Copyright 2004 SAP AG. All rights reserved.                     HTML, XML, XHTML and W3C are trademarks or registered
  ...
CONTENTS
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...
EXECUTIVE SUMMARY
Variable compensation plans, which at one time were                                          A good ICM ...
THE CHALLENGES OF TODAY’S
MARKETS
Compensation and its management are two of the largest
expenditures for many organizatio...
Such innovations have changed the rules about contribution           Meeting Your Organization’s Vision
and reward, as wel...
DESIGNING YOUR
                                                                       COMPENSATION PLAN
Productivity      ...
Your overall corporate strategy must align all internal and            volumes of data and frequent changes to base-compen...
IMPLEMENTING YOUR
COMPENSATION PLAN
Implementing an incentive and compensation management plan                        Deci...
processing commissions and bonuses. Each commission              Your upstream system should provide information for each
...
Participant Determination                                            tives. It should also guarantee minimum payouts and o...
SALES CYCLE                                                   COMPENSATION SYSTEM
 The board of directors defines the comp...
SAP INCENTIVE AND
COMMISSION MANAGEMENT
The SAP Incentive and Commission Management application               Benefits for...
CONCLUSION                                                          GLOSSARY OF TERMS
You face many sales challenges, and ...
commission case                                                       indirect commission
Information provided by the inbo...
www.sap.com /contactsap




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SAP® INCENTIVE AND COMMISSION MANAGEMENT WITH mySAP™ ERP

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SAP® INCENTIVE AND COMMISSION MANAGEMENT WITH mySAP™ ERP

  1. 1. SAP White Paper mySAP ERP SAP® INCENTIVE AND COMMISSION MANAGEMENT WITH mySAP™ ERP
  2. 2. © Copyright 2004 SAP AG. All rights reserved. HTML, XML, XHTML and W3C are trademarks or registered trademarks of W3C®, World Wide Web Consortium, No part of this publication may be reproduced or transmitted in Massachusetts Institute of Technology. any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed Java is a registered trademark of Sun Microsystems, Inc. without prior notice. JavaScript is a registered trademark of Sun Microsystems, Inc., Some software products marketed by SAP AG and its distri- used under license for technology invented and implemented butors contain proprietary software components of other by Netscape. software vendors. MaxDB is a trademark of MySQL AB, Sweden. Microsoft, Windows, Outlook, and PowerPoint are registered trademarks of Microsoft Corporation. SAP, R/3, mySAP, mySAP.com, xApps, xApp, and other SAP products and services mentioned herein as well as their IBM, DB2, DB2 Universal Database, OS/2, Parallel Sysplex, respective logos are trademarks or registered trademarks of MVS/ESA, AIX, S/390, AS/400, OS/390, OS/400, iSeries, pSeries, SAP AG in Germany and in several other countries all over the xSeries, zSeries, z/OS, AFP, Intelligent Miner, WebSphere, world. All other product and service names mentioned are the Netfinity, Tivoli, and Informix are trademarks or registered trademarks of their respective companies. Data contained in trademarks of IBM Corporation in the United States and/or this document serves informational purposes only. National other countries. product specifications may vary. Oracle is a registered trademark of Oracle Corporation. These materials are subject to change without notice. These materials are provided by SAP AG and its affiliated UNIX, X/Open, OSF/1, and Motif are registered trademarks companies (“SAP Group”) for informational purposes only, of the Open Group. without representation or warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect to the Citrix, ICA, Program Neighborhood, MetaFrame, WinFrame, materials. The only warranties for SAP Group products and VideoFrame, and MultiWin are trademarks or registered services are those that are set forth in the express warranty trademarks of Citrix Systems, Inc. statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. 2
  3. 3. CONTENTS Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Challenges of Today’s Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Meeting Your Organization’s Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 – Alignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 – Cost Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 – Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Designing Your Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Key Challenges in Designing a Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 The Compensation Gap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Implementing Your Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Deciding on a Remuneration Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Executing Your Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 – Participant Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 – Object Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 – Remuneration Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 – Settlement and Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Measuring Compensation Plan Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Analyzing Compensation Plan Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Integration with Customer Relationship Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SAP Incentive and Commission Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Benefits for Your Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Benefits for Your Management Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Benefits for Your Sales Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Benefits for Your Administrative Staff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Benefits for Your IT Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3
  4. 4. EXECUTIVE SUMMARY Variable compensation plans, which at one time were A good ICM solution can help you achieve those goals. limited to a company’s sales force and senior management, play an increasingly important role at all organizational levels. This white paper describes the applicability and functions asso- In today’s economy, it is essential to align high-cost items like ciated with new incentive and commission software technologies. your compensation plans and their administration with your It explores the many sales challenges in today’s competitive mar- overall corporate goals. ket and describes some key considerations in designing and re- viewing your compensation plan. It then investigates some of the You can greatly enhance your organization’s productivity by common issues associated with implementing an incentive and rewarding your employees with variable pay according to their compensation plan, and it provides an outline for implementing performance and business contributions. More important, you such a plan. The final sections describe SAP® Incentive and Com- can align desired behaviors with business strategy and help all mission Management and examine the many ways that the appli- employees develop a connection between their contributions cation can benefit your staff, managers, administrators, IT teams, and your organization’s goals. and the organization as a whole. Incentive1 and commission management (ICM) has an impor- tant part to play in achieving positive business results. This is true both for organizations that derive significant revenue from an externally facing sales force (such as companies in the auto- motive, retail, telecommunications, insurance, and e-business sectors) and for organizations that can benefit from a greater focus on key performance indicators (such as project-driven activities in the construction and IT sectors). Various factors might motivate you to design a sales incentive plan. Perhaps your company is in a highly innovative industry in which an aggressive sales force is vital to entering and penetrating the market with new products. Maybe you want to change your current incentive plan to encourage employees to obtain specific results, such as retaining existing business. Maybe your company has a fast-changing organizational structure, dynamic sales channels, and frequent new-product introductions. Perhaps you want to motivate your internal workforce by replacing fixed-salary agreements with performance-related remuneration. 1 See the glossary at the end of this paper for a description of this and other terms set in bold type. 4
  5. 5. THE CHALLENGES OF TODAY’S MARKETS Compensation and its management are two of the largest expenditures for many organizations. These costs include FINANCE dollars spent on actual compensation, as well as administrative expenses and the costs of aligning compensation corporate SUPPLIER Purchas- Manu- Distri- CUSTOMER goals (including the opportunity costs of not achieving business Marketing ing facturing bution Con- Con- objectives). tracts tracts The most effective compensation plans – and the software INTRANET systems that support them – evolve with your organization INTERNET and are immediately scalable to accommodate changes, such as expansion into new territories, sales channel variations, Figure 1: Product-to-Market Process or the introduction of new products. The new generation of incentive and compensation management (ICM) software Whether your organization sells intangibles (such as financial can help both the sales force and the organization as a whole. services) or goods (such as cars), an ICM solution can play a key By ensuring that variable pay is leveraged to improve corporate role in both your sales management process and in achieving performance, such technology can be especially beneficial in the overall business objectives of your organization. In today’s helping your organization obtain maximum value from your fast-moving business environment, many enterprises amend payroll. their compensation plans annually. Your plans must also be capable of evolutionary change that reflects the new ways in In an era of Internet-enabled transactions, your business must be which your business is conducted and the new products and able to transform rapidly or risk losing market share. No longer is markets you must address. At the same time, your plans must it sufficient to invest heavily in lengthy product development, adapt readily to a shorter life cycle for those products and hoping the market will remain static long enough to reward your markets. R&D efforts. Succeeding in today’s business markets requires rapid concept-to-market timelines, and third-party alliances are You can elevate the sales process to a more strategic level by often needed to complete the sales chain. All channels affiliated encouraging your sales staff to be more sensitive to your orga- with this product-to-market process must be closely integrated nization’s business needs and to find solutions that give added with your corporate strategy. value to customers. Increasingly, however, sales management lacks a system infrastructure that is flexible and robust enough The speed of change in business methods today, and in the to support these objectives. delivery of business solutions, must be matched by an equally rapid change in the system infrastructure that supports your One reason for the increased needs in system infrastructure individual business processes. In implementing any compensa- is that, in an effort to improve the performance of the or- tion plan, your organization must overcome the gap between its ganization as a whole, many forward-thinking organizations compensation strategy and the ability of its existing system have extended incentive-based compensation plans into com- infrastructure to support that strategy. pany divisions that have historically received only fixed pay. 5
  6. 6. Such innovations have changed the rules about contribution Meeting Your Organization’s Vision and reward, as well as motivation and retention. Whether the Any investment in organization-wide management tools is a net result has been new levels of productivity, efficiency, and strategic decision. The management support provided by an profitability or greater confusion and an inability to manage ICM solution helps you achieve an optimum balance among as complexity increases depends largely on both the rules and alignment, cost control, and productivity. system support for the new compensation plans. ALIGNMENT Aligning motivation and reward with organizational strengths and direction can be a central force in the rapid evolution of the global economy. Organizations must be able to work with such metrics as product profitability, repeat business, and the time from order to fulfillment. By establishing stakeholder-centric INCENTIVE AND COMMISSION compensation plans, along with the right management tools, MANAGEMENT your organization can ensure that everyone is working toward the same goals. COST CONTROL PRODUCTIVITY At a strategic level, incentives and commissions can help Figure 2: The Balance Among Alignment, Cost Control, and Productivity improve employee performance, productivity, and morale – leading to better cost management. Incentive plans that are Alignment both innovative and appropriate for the business are ideal for Organizational alignment and focus greatly increases the communicating the goals of your organization, measuring per- chance that your enterprise will achieve its strategic goals. formance, and rewarding strategically aligned behaviors. Smart A well-conceived incentive compensation plan motivates and sales- and incentive-management technologies integrate sales promotes strategically desirable behaviors. The right incentives channels within a broader business model, motivating employ- make counterproductive agendas hard to justify and sustain, ees and increasing product quality, profitability, and customer promoting collaborative effort in pursuit of a shared satisfaction. organization-wide goal. Cost Control Automated sales compensation systems produce primarily the following cost savings: • Improved productivity for commission administrators because compensation administration becomes less labor intensive, faster, and more accurate • Reduced overpayments, lessening a common problem for complex organizations • Elimination of unauthorized or unintentional booster commission rates for nonperformers 6
  7. 7. DESIGNING YOUR COMPENSATION PLAN Productivity Your organization must be clear about the roles and expecta- Automating ICM functions improves productivity by reducing tions for your sales force. This may include, for example, empha- the time spent on managing the plan and rechecking error-prone sizing the connection between business development and achiev- manual calculations. Developing reports on sales productivity ing sales volume targets, developing new business as opposed to and commissions requires an understanding of the extended sales managing existing business, developing cross-selling opportuni- process – especially the alignment of internal sales considerations, ties, or following through with after-sales care. All these factors your company’s key business imperatives, and the current fit with combine to determine, for each sales group, the appropriate systems developments and capabilities in the sales arena. Sales balance between fixed-pay and variable-pay components, the management reports should thus provide the following: mix of incentive-pay arrangements (bonuses versus commis- • Timely reporting sions), and the rules for calculating commissions and incentives. • Actionable data • Ease of use Your managers, especially those in sales, can’t achieve these • Ease of access desired results without the necessary systems infrastructure. • Accuracy With an ICM solution, you can adapt rapidly to changing busi- ness conditions and easily track the history of your incentive Actionable data in management reports shows your sales force’s and commission compensation plan. performance from several perspectives. You might produce a rank order of performance, for example, or a table of greatest Key Challenges in Designing a Compensation Plan percentage increases. With the flexibility to organize your data The first challenge for management in designing a compensation in these ways, you can proactively manage sales, rather than plan is to align incentives in an evolutionary sales process that in- retrospectively view your performance. Ease of use in reporting volves many areas of your organization. Such an alignment gives is key to giving individuals ready access to their relative ranks or your plan a contextual framework, allowing all staff members performance. (especially those who are not part of the sales force) to understand the pay decisions that support the organization’s values, culture, An ICM solution helps your organization motivate and manage and business strategy. A staff that understands your corporate your employees through different types of remuneration. expectations – and how individual members can benefit by By combining report-generation software with commission- following your corporate strategy – gives your organization a calculation tools, it can also help you process all transactions, competitive advantage. agreements, and data associated with your incentive compensa- tion plan and generate swifter and more accurate sales reports. The second challenge facing complex organizations today is to develop a compensation plan that creates and harmonizes incen- tives for the many different parties involved in the sales process, including associates, affiliates, distributors, and Web-based partici- pants. An ICM solution should effectively handle compensation for all parties, including those who are indirectly involved with sales. 7
  8. 8. Your overall corporate strategy must align all internal and volumes of data and frequent changes to base-compensation external sales channels. For the many organizations that use rules. An ICM solution should be able to deal both with large multichannel distribution, having timely, accurate information volumes of data across an elongated sales process and with com- makes it much easier to coordinate new sales goals and perfor- plex, multilevel compensation calculations. mance metrics. Although Web-enabled technologies can enhance communication within your organization, the long-term success DECISION SUPPORT of this approach depends on arranging the right information around the right strategy or framework with minimum effort. OPERATIONAL PROCESSES DATA STORAGE A third challenge in designing a compensation plan is to ensure DECISION SUPPORT that the plan is sufficiently responsive to changing market condi- Rules Calculation ICM tions and business priorities. A well-designed ICM solution meets Accounts each of these strategic challenges. For example, because a variety of parties may be involved in the sales transaction and commission processes, calculation rules should be linked across all areas of SETTLEMENT & ACCRUALS vested interest, and all compensation results and rule changes should be quickly processed. The Compensation Gap Figure 3: Integration of ICM Functions with Upstream and Downstream Variable compensation and incentive plans – previously restricted Applications to an organization’s sales force – are increasingly available to em- ployees who are not salespeople. The plans have become both Often, compensation systems must interface with multiple legacy a means for motivating and aligning employee behavior with systems that may include sales operations data, financial systems, overall corporate strategy and a method for ensuring that your human resource systems, customer relationship management an organization can afford the compensation for such behavior. systems, and strategic enterprise management applications. Given As a result, the volume of information that your organization the importance of intelligent collaboration in today’s economy, must capture and process has increased significantly. This, in your organization must be able to develop a business model that turn, has created a compensation gap: the gap between the com- can accommodate Internet connectivity, a range of legacy systems, pensation strategy and the ability of the systems’ infrastructure and all combinations of upstream and downstream interfaces in to implement that strategy. a wide-ranging sales and supply process. Even today, compensation planning tools often depend on By integrating data and information from your sales-processing spreadsheets whose embedded macros and encryptions become and financial systems with your customer relationship manage- fragile and unwieldy when scaled beyond their very modest ment, channel partner, and sales automation systems, an ICM capacities. This weakness is exacerbated when organizations allow solution makes it easier to track, monitor, manage, and reward these tools to be managed locally, with no central control. the sales behaviors that are strategically imperative to your busi- Surprisingly, a large number of otherwise sophisticated organiza- ness. By helping you reward strategically aligned behavior, an ICM tions still rely on this mode of compensation management. For solution links the people and processes in your organization with some time now, market demand has been strong for a flexible, your overall business goals. enterprise-applicable infrastructure that can handle large 8
  9. 9. IMPLEMENTING YOUR COMPENSATION PLAN Implementing an incentive and compensation management plan Deciding on a Remuneration Strategy is not a one-time event. It is an iterative, ongoing process that is An effective remuneration strategy reflects your overall business defined by a closed management loop model (see Figure 4). strategy – for both your product offerings (how you motivate sales for certain product lines and market segments) and your Amend compensation plans organization (how you motivate various individuals and groups for future periods within your workforce). A complete ICM solution should offer a ANALYZE calculation process that addresses both your corporate strategy and the individual compensation programs within your organization. MEASURE DECIDE Measure Design compensation INCENTIVE AND compensation COMMISSION Your corporate strategy is defined by valuation rules. These rules results plans aligned (per region, MANAGEMENT with corporate evaluate an object, such as a product, based on its profit con- product line, business strategy customer tribution – differentiating key products from peripheral products. hierarchy . . .) The valuation occurs independent of the individuals involved, which lets you push activities for specific products. EXECUTE Calculate commissions Valuation results are included in calculations for individual com- Calculate incentives Prepare settlement operations pensation programs, according to the particular remuneration rules for those individuals, to determine their exact commission Figure 4: Closed Management Loop Model amounts. A complete ICM solution lets you define remuneration rules for the compensating managers, organizational units, em- Initially, your management team determines what compensation ployees, partners, and other individuals and offers the following strategy to use, making sure it is in line with the overall business features: strategy of your organization. Information from the operational • A flexible organizational structure systems specifies the activities for each member of the team who You should be able to represent the specific network or is directly involved (such as the marketing or sales staff). With this hierarchy of your workforce that receives variable compensa- information and information about an individual’s compensation tion and make multilevel calculations for variable compensa- plan, an ICM solution can calculate commission. The result of tion related to a single business transaction. For example, a this calculation is posted in the system and prepared for settle- sales representative may receive a direct reward for a sale, ment at the end of the compensation period that your manage- whereas the representative’s manager may receive an indirect ment team has set. reward for the same transaction, perhaps by gathering bonus points in the commission account. You can then measure and analyze the commission information • A master record for the commission recipient to assess the effectiveness of both your compensation plan and You can manage all relevant data concerning remuneration for your organization’s sales staff and processes. Based on the results a particular person or group within your organization through of this analysis and knowledge of any changes that have occurred a master record for the commission recipient. in the organization’s business objectives and associated marketing • A master record for the commission contract activities, your management team can then decide how to alter A commission contract defines the rules of the remuneration the compensation plan. agreement between the organization and its business partners (commission recipients); it contains all rules for calculating and 9
  10. 10. processing commissions and bonuses. Each commission Your upstream system should provide information for each contract is based on a template that defines common rules commission case, including data on business partners (such as for specific groups. All managers within your company sales agents), business object (such as telecommunications might, therefore, have individual commission contracts contracts), and business activities (such as new sales, up-selling, that are derived from the same standard contract. Both the or cross-selling by business partners). After receiving this data, commission contract and the relevant business partner are an ICM solution should automatically: assigned to a specific place in the organizational structure. • Determine the participants (business partners or commission You can store versions of commission contracts (contract recipients) versions for successive years, for example) according to the • Valuate the transaction for the relevant business object dates and times that they were created and validated. • Calculate remuneration for the commission recipients • Settle and disburse the remuneration In the commission contract, you establish the relevant business objects (such as a car sale or mobile phone subscription) and the The results from this data processing can then be posted as com- level of compensation for each transaction related to the object mission documents. If the processing can’t be completed, the that the commission recipient successfully concludes. The com- commission case is set to pending and forwarded to the work lists pensation can be scaled (increased for specific volumes of sales), of the commission administrators for manual handling. At the time bound (increased for sales made within a specified time peri- end of the compensation period, the commission account and all od), or split between two or more commission recipients who are its documents are closed, and the relevant data is transferred to working as a team. the settlement system for payout to the recipients. The following sections take a closer look at how the execution process works. In this way, an ICM solution can reflect the specific compensation plan you have designed. Integrating ICM functions with strategic Com- enterprise management makes it easy for senior management to mission Case review the success of your compensation plan. As a result, man- agement may amend the sales network or hierarchy, the commis- Periodic Commission sion contracts (either standard or individual), the sales channels Com- Calculation Activity Organiza- or products, and the calculation rules to ensure that your organi- mission tion Business Partner Contact zation continues to meet its overall business objectives. Determine Participants Commis- Business Object Valuate Objects Post sion Executing Your Plan Calculate Remunerations Account Obviously, commissions and other incentives can be calculated with various levels of granularity. That is, you can calculate them for individual business transactions (such as the conclusion of a Settlement sales contract) or at an aggregated level (based on quarterly sales Disburse Pay volume, for example). Figure 5: Transactional Processes 10
  11. 11. Participant Determination tives. It should also guarantee minimum payouts and offsetting The first step in the execution process is to identify all the compared with previous period payouts. The financial data can commission recipients for a particular commission case. Data for then be transferred either to the relevant settlement system direct participants is transferred at the incoming interface. The (such as payroll or accounts payable) or to a third-party ICM solution then locates all indirect participants using infor- settlement system. mation from the commission contract and the organizational structure. Indirect participants might include managers who Measuring Compensation Plan Results receive remuneration when their staff members conduct Once an ICM solution has made the reimbursement calcula- successful transactions. tions, it is important to collate the data for analysis and review. A good ICM solution will allow you to access calculation details Object Valuation from different views (by product or region, for example). It will In valuing business objects, commission activity is considered also allow you to export the information to any data-warehouse separately from the recipient. The valuation for a particular solution, where it can be compared with other information, product might vary over its life cycle. For example, at the begin- such as relevant sales statistics. ning, valuation might be set high (resulting in a high commis- sion for the recipient) to push a new product into the market. Analyzing Compensation Plan Data The valuation could then be lowered when the product has Before making any changes to your compensation plan, it’s been successfully launched. The rules for valuation are specified important to review and analyze the information you have in the customizing menu and can be quickly adapted to new gathered. This will help you determine which business partners remuneration strategies. You can keep track of changes in valu- have been most successful and which compensation strategies ation because they are saved in historical versions of the have been most effective in promoting the desired behaviors. commission contracts. You can then use your analysis, along with the requirements for any new product lines or marketing campaigns, to make what- Remuneration Calculation ever changes are needed to your compensation plan. Calculations of remuneration are based on the valuation results and calculated for each direct commission and indirect com- Integration with Customer Relationship mission recipient according to individual remuneration rules. Management The calculations are then posted to the commission accounts. How do you integrate an ICM solution with your sales cycle? The remuneration can be either monetary or nonmonetary Figure 6 shows one example of the interaction between an (such as bonus points for sales competitions). organization’s sales cycle and its compensation system. Settlement and Disbursement At the end of the compensation period, an ICM solution should close the commission accounts and calculate both variable and constant compensations. Constant compensation can be a flat rate, such as office or telephone costs. Variable compensation represents calculation results for both commissions and incen- 11
  12. 12. SALES CYCLE COMPENSATION SYSTEM The board of directors defines the company’s sales and market- • Commission recipients and their contracts are defined ing strategy. (for example, the manager, interaction center agent, presales consultant, sales representative, and customer service representative). • Commission and incentive rules are defined according to the sales strategy. A marketing campaign is initiated to promote a particular Rules are defined for the promoted product’s valuation and for product for a market segment in line with the sales strategy. the variable compensation of commission recipients. • Prospects are contacted. The opportunity triggers compensation (for example, for the • The interaction center agent calls to qualify the lead. presales consultant, the interaction center agent, and the • If the prospect is interested, the lead qualification level is set manager). accordingly. • The responsible sales rep is determined. If the sales rep accepts the lead, an opportunity is created. Sales activities occur for the opportunity. Various activities trigger compensation (for example, a customer demonstration or customer visits) A quotation is presented. The quotation triggers compensation. The sales order triggers compensation (for example, the sales • If the prospect makes a positive decision, a sales order or representative receives direct compensation, and the manager contract is signed. receives indirect compensation). • Logistics execution takes place. • The sales bill is processed. • The bill triggers compensation. • Collection takes place. • Collection triggers compensation. Assigned employees provide after-sales customer service and Positive feedback triggers compensation (for example, for the complaint management and ensure the customer is satisfied. sales representative and customer service representative) or negative feedback (trigger for claw-back). Figure 6: Integrating Customer Relationship Management Information In this example, the sale becomes a collaborative effort between From a management perspective, this model is extremely five commission recipients: the manager (who receives indirect alluring. In addition to facilitating the management of internal compensation as a result of the sales staff’s efforts), the interaction and external sales staff (and their contracts), it motivates staff to center agent, the presales consultant, the sales representative, and update the data in the system regularly, ensuring that the customer service representative. management has the latest sales information at its disposal. The commission recipients can check the system at any point, using personalized Internet access to view the level of compensa- tion they are due. This provides immediate reinforcement for pos- itive behaviors. 12
  13. 13. SAP INCENTIVE AND COMMISSION MANAGEMENT The SAP Incentive and Commission Management application Benefits for Your Administrative Staff is a part of both the mySAP™ ERP and mySAP Customer Rela- Your administrative staff benefits from a high level of automation tionship Management (mySAP CRM) solutions. It incorporates and from better and easier management of incentive and com- many of the important functionalities addressed above, deliver- mission recipients, their contracts, and the organizational struc- ing a complete solution for managing compensation and incen- ture to which they belong. Being able to manage everything from tives across your organization. The application delivers benefits a central location makes it easy to amend your compensation at multiple levels of your organization. plan. SAP Incentive and Commission Management provides stan- dard contracts, which make it easier to amend your compensa- Benefits for Your Organization tion plan and to create new compensation contracts. SAP designed the application to be highly flexible. You can easily amend the calculation rules, ensuring that your compensation Benefits for Your IT Staff plan remains synchronized with your organization’s current busi- You can use SAP Incentive and Commission Management as ness goals. The increased visibility and easy access to information a stand-alone tool or as part of your mySAP ERP solution. about earned and expected compensation can stimulate positive The application works with the employee transaction manage- culture changes in your organization. By providing timely feed- ment capabilities of mySAP ERP Human Capital Management back to staff members, you can better reinforce and reward (mySAP ERP HCM), the accounts payable capability of mySAP successful behaviors and improve motivation for future sales ERP, or any other SAP or third-party settlement system. Your IT strategies. staff can process high volumes of data accurately and rapidly, and because SAP Incentive and Commission Management stores Benefits for Your Management Team data in a central location, data maintenance and reporting are SAP Incentive and Commission Management helps you manage greatly simplified. your internal and external sales forces and define their con- tracts and agreements, as well as the organizational structure to SAP Incentive and Commission Management is scalable, so you which they belong. It also provides a historical record of com- can transfer data at the transactional or aggregated level, which pensation changes. You can carry out evaluations of your sales further maximizes performance. The flexible definition of in- force based on various criteria – by product, region, or depart- bound and outbound interfaces lets your IT staff introduce ment, for example. The ability to quickly amend calculation additional data without having to modify the calculation code. rules provides key support for changes in your sales and market- You can also extend data fields without modifications, which ing campaigns. gives the IT staff maximum flexibility in addressing your specific needs. In addition, the staff can define the calculation rules for Benefits for Your Sales Staff valuation, remuneration, and clearing to suit the requirements SAP Incentive and Commission Management delivers the tools of your organization. you need to provide accurate compensation that reflects the success of individual sales staff and to make your incentive crite- ria more visible and understandable. Because the compensation data is more accurate, your sales staff spends less time shadow tracking and more time on crucial sales activities. Your staff also has easy access to a historical record of their personal compen- sation changes. 13
  14. 14. CONCLUSION GLOSSARY OF TERMS You face many sales challenges, and you must consider key issues business object when designing, reviewing, and implementing sales incentives The product or service for which incentives or commissions are and compensation across your organization. SAP Incentive and calculated (such as an insurance policy, a car, or a mobile phone Commission Management can benefit your staff, managers, subscription) administrators, IT teams, and organization in many ways. business partner SAP Incentive and Commission Management is a cross-industry A cross-application entity that is specific to SAP solutions. In solution that lets you process incentives and commissions quickly the SAP Incentive and Commission Management application, it and adapt rapidly to changing business conditions and track the refers to the commission recipient. history of your changes to incentive and commission rules and rates. With SAP Incentive and Commission Management, you closed management loop model can handle all the usual forms of sales remunerations, such as A four-step management model that reflects a continuous commissions, brokerage fees, profit sharing, bonuses, and can- improvement process cellations. Clear encapsulation and easy interfacing capabilities ensure that SAP Incentive and Commission Management can be commission seamlessly integrated into your IT environment and used with The fee or percentage a sales representative receives for services both SAP and non-SAP solutions. rendered With SAP Incentive and Commission Management, you have commission account the right tools to: The area in which commission and incentive calculations are • Handle different kinds of variable compensations stored prior to disbursement • Lead your sales force (and, therefore, gain control over important financial budgets) commission activity • Motivate your people and increase your organization’s The action that triggers compensation (such as new business or productivity the renewal of business) To learn more about how SAP Incentive and Commission Man- commission administrator agement can help your organization streamline its compensation The staff member who administers the compensation plan programs, visit swww.sap.com/erp and master data, such as commission contracts and contract partners 14
  15. 15. commission case indirect commission Information provided by the inbound systems that is needed The fee or percentage an individual receives as a result of the to execute the commission calculation – such as information services others have rendered about the business partner (for example, the responsible sales rep), business object (such as a life insurance policy), and indirect reward activity (such as new business) The reward given to an individual who earns compensation or incentives as a result of the activities of others commission contract The contract (based on the standard contract) that is held by standard contract the commission recipient and outlines the terms of the A template contract used for a group of commission compensation agreement recipients to which individual agreements can be added commission recipient The business partner – the person or organization that will receive the commission or incentive according to the terms of the commission contract direct commission The fee or percentage sales representatives receive for the servic- es they render direct reward The reward given to individuals who earn compensation or incentives as a result of their own activities incentive Period-based variable compensation (such as a performance bonus) 15
  16. 16. www.sap.com /contactsap 50 058 286 (05/03)

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