Learn how to make the business case for an Incentive Compensation Management system. Understand the ROI delivered by such solutions so that you can justify the ‘spend’ and feel confident that your organization will realize tangible and meaningful business results.

1. The ROI of Incentive Compensation Management – Making the Business Case
Incent Perform Grow
The ROI of Incentive
Compensation
Management – Making
the Business Case

2. The ROI of Incentive Compensation Management – Making the Business Case
Any organization looking to increase the accuracy, improve the efficiencies, and increase the analytic
capabilities of its compensation system may be a candidate for a new incentive compensation
management (ICM) system.
But how do you make the business case?
Without a clearer understanding of the ROI delivered by such solutions, it is difficult for organizations to
justify the ‘spend’.
With thoughtful planning to outline
both the associated costs and the
expected benefits of a new incentive
compensation management system,
the business case will be greatly
strengthened, thereby increasing the
chance that the initiative will receive
funding.
This document has been written
to quantify the ROI of Incentive
Compensation Management solutions
and to help business leaders to
understand the definitive value so that
they can embrace ICM technology with
confidence, knowing that it will support
their corporate goals. It will also take
readers through a systematic process
of self-assessment so they can identify
gaps and opportunities and make a
compelling case about anticipated
ROI.
ROI
If you are considering a new ICM solution, you probably recognize the limitations of your company’s
existing system.
Survey the ICM Landscape

3. The ROI of Incentive Compensation Management – Making the Business Case
Operations, Marketing, and Sales
Delays of new product rollouts due to inflexible compensation
system.
Avoided potentially beneficial compensation structure changes
because the current system cannot easily accommodate change.
Difficulty getting timely sales incentive analytical data.
Sales personnel attrition rate is higher than industry average.
Sales personnel and compensation administrators spend a lot of
time disputing payment amounts.
Payment disputes are difficult to research and resolve.
Finance and Accounting
Current system often results in overpayments.
Commission payments are sometimes late due to the current
process.
The last audit of the commission process was time consuming and
expensive.
IT Support
Changes to the compensation structure demands considerable
support by the IT department.
Expensive hardware and software costs.
As you anticipate the value add of a new solution, you should be very clear regarding the opportunities
for growth. Use the checklist below to make note of those areas within your organization that are being
impacted by a limited and inflexible ICM infrastructure.

4. The ROI of Incentive Compensation Management – Making the Business Case
Experts estimate that sales personnel spend from 8 to 24 hours per month ensuring that their
commission payments are accurate due to a distrust of the commission calculation. This activity is often
referred to as Shadow Accounting. The cost of Shadow Accounting can be measured in wasted sales
rep salary or in unrealized revenue due to a loss of time spent selling.
Gartner estimates an average 3% - 8% error rate in overpayment related to incentive compensation
pay disbursed using manual systems such as spreadsheets.
STEP 1 - Monetize the ICM Cost & Deficiencies
Commision Overpayment
= (avg_rep_salary) x x (no_of_sales_reps)________________
5 - 15% of total_rep_salary
(8 - 24 x 12mo)
hrs___
mo
hrs___
yr2000
~=
Shadow Accounting (Sales Rep Salary)
Shadow Accounting (Unrealized Revenue)
= x (total revenue) 5 - 15% of total_revenue________________(8 - 24 x 12mo)
hrs___
mo
hrs___
yr2000
~=
Overpayment cost = overpayment_rate x total_commissions_paid

5. The ROI of Incentive Compensation Management – Making the Business Case
Aberdeen Group research found that the average company spends $1,500 a year per plan participant
to administer these plans. This includes year over year plan changes and the time needed for IT and
support resources to make these changes.
HR experts estimate the cost of replacing a sales person at 1.5 times their base salary. Inaccurate or
late commission payments from your spreadsheets or legacy commission system can cause frustration
and excessive sales personnel attrition. The effect can be calculated by summing excessive turnover
costs with the following formula:
This metric can sometimes be difficult to calculate, but the real-time information used by Sales
Management and Organizational staff drives the development and implementation of plans that are
tied to higher gross margin products and services.
Plan Administration Costs
Excessive Sales Personnel Turnover
Increased Sale Revenue & Gross Margin
INSIGHT
FROM REAL
TIME DATA
DEVELOPMENT OF
COMPENSATION
PLANS
SALE OF HIGHER
GROSS MARGIN
PRODUCTS & SERVICES
Administrative Costs = ($1500 - $1900) x no_of_sales_reps
Excessive Attrition Cost = attrition_rate x no_of_sales_reps x
1.5 x avg_sales_rep_salary

6. The ROI of Incentive Compensation Management – Making the Business Case
Inaccurate payments of a spreadsheet-based or legacy SPM system cause payment disputes and the
cost can be measured in wasted sales rep salary or unrealized revenue due to loss of selling time.
Regardless of the size of the organization, the benefits of replacing an inaccurate or inefficient
compensation system can indeed be quantified.
By taking the first step of conducting an honest evaluation of your company’s current state, you will be
better prepared to understand the ROI case.
Before you can calculate the ROI, you need to consider the ICM deployment options.
Payment Disputes
= (avg_rep_salary) x x (no_of_sales_reps)____________________________(avg_time_disputing x 12mo)
hrs___
mo
hrs___
yr2000
= (avg_revenue_per_rep) x x (no_of_sales_reps)____________________________(avg_time_disputing x 12mo)
hrs___
mo
hrs___
yr2000
Annual Dispute Cost (Sales Rep Salary)
Annual Dispute Cost (Lost Revenue)
Don’t Forget to Consider Deployment Options

7. The ROI of Incentive Compensation Management – Making the Business Case
Software as a Service (SaaS)
Hosted
On-premise
ADVANTAGES
ADVANTAGES
ADVANTAGES
DISADVANTAGES
DISADVANTAGES
DISADVANTAGES
Initial deployment time reduced, minimal
customer IT support requirements,
reduced customer hardware and
administration costs (lower capital
expenditure), maintenance and upgrades
handled by the vendor, predictable cost
structure
Reduced customer IT support
requirements, upgrades controlled by
customer, functionality comparable to on-
premise solutions
Greatest flexibility and functionality and
data security of available options
Customization limited to the
configurable features of the software,
company data resides outside their
network and firewall
Company data outside their network
and firewall, generally higher
subscription costs or upfront license
fees compared to SaaS solutions
Highest internal IT support
requirements, highest hardware and
licensing costs

8. The ROI of Incentive Compensation Management – Making the Business Case
In order to create a ROI case, the total cost of ownership (TCO) of the new solution needs to be
estimated. This is the investment that is to be paid back in savings and revenue increases; that
payback period is calculated with the following formula:
Estimated costs will include both one time and recurring costs.
Costs incurred in only the first year of
the new system’s life.
• Hardware (On-premise and
some hosting solutions)
• Software licensing (On-
premise and some hosting
solutions)
• Implementation / activation
costs
• Hardware / Software
maintenance fees (On-premise
and some hosting solutions)
• Subscription fees (SaaS and
some hosting solutions)
• Internal IT costs
Costs incurred every year
STEP 2 - Estimate the Total Cost of Ownership (TCO)
= 12 x _________________________________________________________(capital_investment)
(estimated_annual_savings) + (estimated_annual_incremental_revenue)
ROI Payback Time (months)
ONE TIME COSTS RECURRING COSTS

9. The ROI of Incentive Compensation Management – Making the Business Case
You will want to evaluate the savings or recovery percentage for each cost and revenue recovery
opportunity identified in Step 1.
Determine a factor to be used before including the figures in your ROI calculation. Compared with
spreadsheets or legacy systems, a new ICM system that is well implemented should allow for 50 – 75%
recovery of costs or incremental revenue realization including:
• Shadow accounting costs
• Overpayment costs
• Administrative costs
• Excessive attrition costs
• Dispute costs
• Dispute lost revenue
Weighing Soft and Hard cost or incremental revenue items
Be more conservative when estimating savings or incremental revenue opportunities if they are based
solely on studies or surveys rather than harder data obtained from analysis or audit of your particular
process.
Create an ROI Spreadsheet
Create an ROI spreadsheet to facilitate ROI values and payback period calculation. Don’t forget to
delay cost savings and revenue recovery realization until the implementation is completed.
STEP 3 – Calculate the ROI

10. The ROI of Incentive Compensation Management – Making the Business Case
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Most organizations are beginning to understand that:
• ICM drives cost reduction
• ICM improves employee performance
• ICM aligns business goals and plan effectiveness
• ICM enhances management insight
However, even if an organization has these anticipated benefits in mind, it should always undertake an
internal audit of existing challenges and opportunities before investing in an incentive compensation
management solution.
While ICM offers a wide breadth of benefit to help companies increase performance, lower costs, align
business goals with compensation plans and gain meaningful insight, the business case is that much
more compelling when it is made with a thoughtful calculation of anticipated ROI.
Summary
About Iconixx
Iconixx is a total solution provider for compensation management. The Iconixx product
suite – Iconixx Sales, Iconixx Incentive and Iconixx Merit –makes the company a one-stop
resource for sales, bonus and salary compensation solutions. Our cost-effective,
Cloud-based solutions deliver incentives to the entire workforce for businesses of all sizes.
Drawing on over 15 years of experience, Iconixx also partners with clients to accelerate
their business growth through actionable intelligence. Whether it’s using Iconixx
technology or leveraging a client’s current investment, Iconixx’s expertise can drive