Ownership of the Incentive Compensation Plan should be a critical issue for any company. Even so, most organizations struggle to answer this question: Who owns Incentive Compensation?
This is much more complicated than it sounds. Understanding Incentive Compensation does not immediately translate into an Incentive Compensation plan. Incentive Compensation Management is a different ball game altogether! To put it simply, ICM is the strategic process of creating and implementing an incentive plan that works.
For instance, an IC plan built for success will ideally-
- Improve your forecasts
- Align rep behavior with your company’s goals
- Empower your reps to earn more and provide them upward mobility
- Contribute to better customer interaction and service
- Reward top performers
Saying that it is difficult to create a plan that potentially leads to these outcomes would be an understatement. Who then takes on this herculean task of designing your company’s IC plan?
Inevitably, many functional groups play an important role in designing the Incentive Compensation plan at an organization. These include-
- Senior Management
- Human Resources
You may ask- How do you hand over ownership to one functional group?
The answer is simple. You don’t. For most organizations today, ownership translates to assigning specific components of the design and execution of the IC plan to the different participants involved in the process.
A simple breakdown of the ownership would look like this-
The Vision of the IC plan belongs to the management. Organizations today are diverse, to say the least. So are their IC plans and pay philosophies. There is no ‘one size fits all’ compensation plan that sales leaders can pick off the shelf, and customization is key.
Leaders should therefore start the process by asking important questions like- Is the IC plan aligning with the company’s overall goals? What does growth look like to the organization? How can an IC plan drive that growth?
Some of the key issues that Management should address are-
- Providing a roadmap for designing the IC plan
- Communicating the larger business goals
- Identifying KPIs
- Defining targets
In many ogranizations, Human Resources are touted as complete owners of the IC program. However, this is far from the truth. As the consultative resource of the organization, the role of HR is significant but they still cannot be treated as complete owners of the IC plan.
HR is mostly responsible for coordinating the design process. This would include a plethora of tasks like-
- Ensuring that the IC plan is fair and equitable
- Making sure that the IC plan is managed within the allocated budget
- Reviewing payouts
- Providing inputs regarding corporate policies
- Ensuring that employees’ voices are heard during the design process
- Collecting market data
Therefore, it is true that HR owns a large chunk of the IC process but they don’t qualify as sole owners yet.
The financial aspects of the IC plan including payouts, auditing and costing are owned by Finance. After the plan has been designed, the Finance department puts the plan through a costing analysis to make sure that the payouts are appropriate. Costing also helps with setting a budget.
The role of Finance continues well after the plan has been implemented. The department is also tasked with conducting periodic audits. This means that the Finance team will look at the incentive payouts from time to time to ensure that there are no discrepancies. The audit process is communicated to the stakeholders at the beginning of the fiscal period.
The Operations team or Admin makes sure that the performance results are logged appropriately and due credit is given to the individual salespersons. This group has a complete understanding of the plan design.
When the plan is in the design phase, Operations will also assist with providing relevant data, reports and analysis. The Admin is also sometimes responsible for setting IC targets/quotas. Another important area of concern for the admin staff is to identify bottlenecks and discrepancies in the IC process.