ISG Research is happy to share insights gleaned from our latest Buyers Guide, an assessment of how well software providers’ offerings meet buyers’ requirements. The Incentive Compensation Management: ISG Research Buyers Guide is the distillation of a year of market and product research by ISG Research.
For almost 20 years, the annual planning exercise at most enterprises has included determining how the sales organization will address the coming year’s incentive plans. The
Simple notions of a percentage of sales paid as commission have expanded to include more complex ideas of thresholds and triggers for reaching sales targets. Newer business models such as subscriptions and usage-based pricing that impact the contract lifetime value have increased payment complexity—for example, the need to consider when revenue is recognized under rules such as ASC 606. In addition, incentive compensation often reaches beyond the sales team as more members of an enterprise become involved with revenue—such as those charged with ensuring contract renewals. These factors add to the complexity of plan designs, requiring approaches beyond typical spreadsheet interfaces.
Poorly designed incentive plans fail to achieve business objectives. Inaccurate crediting and compensation calculations become potential flash points, undermining the confidence of key workers. Lack of insight into potential liabilities can provide unwelcome surprises to the CFO’s team. To support these strategically important incentive plans, enterprises are discovering that simple spreadsheets are increasingly proving an impediment to growth. Likewise, homegrown systems are often unwieldy and rely on IT and technical staff to make plan changes.
ISG Research defines incentive compensation management (ICM) as a coordinated set of activities, processes and systems that enable enterprises to both design and plan incentive compensation, credit and compute commissions and payments and to monitor and adjust in to achieve customer, product and sales targets.
To provide more robust and adaptable systems, specialist software providers offer dedicated applications designed to enable the complete process from incentive compensation plan design to crediting sales and computing compensation. These systems control costs that are a substantial expense line on the income statement, highlighting the need for sometimes daily computation of accrued compensation and the projection of liabilities based on sales and revenue opportunity forecasts.
Some software providers offer a selection of preconfigured incentive compensation methods. Others provide a natural language interface for plan designers to describe the incentive idea and have the system generate the necessary code. Some offer “what if” and simulation capabilities that enable the a priori of testing and evaluation of plan options before publishing and operationalizing. Finally, the use of artificial intelligence to optimize plan design based on the desired outcome is on several providers’ roadmaps. All the providers featured in this report enable plan design and changes by domain experts without the need for IT support. Once plans are defined, most applications support dissemination and publishing capabilities that seek approval from senior leadership and sign-up from affected workers.
When it comes to computing commissions and payouts, ICM applications need to support a variety of data sources, both as the base for computing compensation and defining who shares in the compensation. As the adage says, selling is a team sport, so, for many enterprises, the compensation due from a sale could be shared between product and technical overlay specialists as well as regional representatives on larger, cross-country deals. This process of crediting requires the ICM system to derive relevant data from customer relationship management systems, where opportunity and deal ownership data resides. However, the relevant final booked amount data is typically found in order or enterprise resource planning applications, as the value recorded in the opportunity is often different from the final booked value, and the order with relevant pricing and product information is attached as a .pdf. Payout information is typically circulated for approval prior to submission to a payroll system for disbursement.
Integration options vary, with older, internally developed systems exchanging data through flat file loading. This may suffice for batch-type processing at the end of an accounting period—such as month-end. Otherwise, continuous computation is necessary for visibility and efficiency. As the total incentive compensation represents a significant expense on the income statement, many CFOs and finance leaders require visibility into the accrued liability of compensation payouts on a daily or weekly basis—especially where high-velocity or inside sales teams receive transaction-based incentive compensation. This requires direct access to source data via an application programming interface or a specific connector.
For through processing, this approach can facilitate the re-fetching of data if the process needs to be rerun. Likewise, as an output, computed payouts must be sent to the payroll system or whatever is used to pay workers. Many of today’s sales engagement and CRM systems provide the ability to link incentive compensation plans to opportunities so those responsible can see the potential compensation from a particular deal. On a more aggregate level, sales forecasts based on the pipeline of opportunities can give a forward projection of potential compensation expense liability.
Successful incentive compensation plans influence behavior to achieve desired outcomes. Analytics and data from operations and planning enable continuous analysis of results against incentives. To optimize performance, operations and leadership need tools to help assess the relationship between plans, targets and actual performance. Comparing compensation and incentive plans among all revenue personnel and with other parts of the organization, for example, can help managers determine whether what they provide is appropriate. Goals and objectives must be defined, established, tracked and linked to incentives and rewards to help guide revenue performance.
Enterprises must also understand whether the compensation plan is competitive in the market, using benchmarks to compare to others in the industry.
Many enterprises still rely on existing, home-grown custom systems or spreadsheets to manage incentive compensation. We strongly believe these approaches are problematic when trying to achieve optimal outcomes. Custom systems are often heavily reliant on internal IT to incorporate changes or create additional reports. As the need for enterprises to become more agile in response to changing market conditions, inflexible custom systems are often incapable of adapting at the speeds necessary.
Spreadsheets are not designed to be able to manage the volume of data from newer revenue channels or the varying types of buying and selling channels used to assess the success of goals and targets. Spreadsheets also cannot scale as a company grows. The use of multiple spreadsheets, often stored on users’ local drives, is a factor in producing scattered information, which most enterprises cite as a major impediment to managing revenue performance. This also makes it hard for organizations to analyze the performance of incentives and refine them based on actual results during the year.
The next generation of revenue and sales leaders will need to focus on creating processes that generate and project predictable revenues. Incentive management systems should deliver functionality and support that enable enterprises to plan for and optimize revenue growth across all relevant teams and channels. In today’s fast-paced and dynamic business environment, the ability to react to changes on the ground with one-off SPIFFs and adjustments to incentives requires access to responsive applications by non-IT administrators and subject matter experts. Additionally, the importance of aligning marketing, sales, operations, finance and HR means that ICM applications must easily integrate and communicate with other core systems such as ERP, accounting, HR and CRM systems.
Our comprehensive evaluation of providers takes into consideration all the preceding characteristics needed for a revenue performance approach. Our Buyers Guide report is relevant to those organizations using a revenue performance approach or investigating one.
The ISG Buyers Guide™ for Incentive Compensation Management evaluates products based on incentive compensation design, planning and execution, ease of integration with third-party systems and the use of data and analytics to identify process improvements. The evaluation identifies capabilities that enable organizations to plan for and execute against objectives by aligning and incentivizing all those involved in supporting revenue and identifying ways to continually improve.
This research evaluates the following software providers that offer products to address key elements of ICM as we define it: Akeron, Anaplan, Beqom, Board International, CaptivateIQ, Everstage, Forma.AI, Jedox, Oracle, Performio, Pigment, Salesforce, SAP, Varicent Software and Xactly.
This research-based index evaluates the full business and information technology value of incentive compensation management software offerings. We encourage you to learn more about our Buyers Guide and its effectiveness as a provider selection and RFI/RFP tool.
We urge organizations to do a thorough job of evaluating incentive compensation management offerings in this Buyers Guide as both the results of our in-depth analysis of these software providers and as an evaluation methodology. The Buyers Guide can be used to evaluate existing suppliers, plus provides evaluation criteria for new projects. Using it can shorten the cycle time for an RFP and the definition of an RFI.
The Buyers Guide for Incentive Compensation Management in 2024 finds Oracle first on the list, followed by Anaplan and Xactly.
Software providers that rated in the top three of any category ﹘ including the product and customer experience dimensions ﹘ earn the designation of Leader.
The Leaders in Product Experience are:
The Leaders in Customer Experience are:
The Leaders across any of the seven categories are:
The overall performance chart provides a visual representation of how providers rate across product and customer experience. Software providers with products scoring higher in a weighted rating of the five product experience categories place farther to the right. The combination of ratings for the two customer experience categories determines their placement on the vertical axis. As a result, providers that place closer to the upper-right are “exemplary” and rated higher than those closer to the lower-left and identified as providers of “merit.” Software providers that excelled at customer experience over product experience have an “assurance” rating, and those excelling instead in product experience have an “innovative” rating.
Note that close provider scores should not be taken to imply that the packages evaluated are functionally identical or equally well-suited for use by every enterprise or process. Although there is a high degree of commonality in how organizations handle incentive compensation management, there are many idiosyncrasies and differences that can make one provider’s offering a better fit than another.
ISG Research has made every effort to encompass in this Buyers Guide the overall product and customer experience from our incentive compensation management blueprint, which we believe reflects what a well-crafted RFP should contain. Even so, there may be additional areas that affect which software provider and products best fit an enterprise’s particular requirements. Therefore, while this research is complete as it stands, utilizing it in your own organizational context is critical to ensure that products deliver the highest level of support for your projects.
You can find more details on our community as well as on our expertise in the research for this Buyers Guide.