Incentive compensation software tracks the most complex pay calculations. This software is most commonly used when a business has a complex system for calculating the commissions and bonuses paid to its salespeople. Such a system may incorporate any number of the following features:
- Commission splits between multiple salespeople
- Bonuses for reaching various sales targets, such as quarterly and annual goals
- Overrides to increase the amount of a commission, as may be granted when a salesperson makes sales in a new sales region that the company is trying to expand
- Caps that limit the maximum amount of commissions that can be earned
- Guaranteed payments, as may be employed to entice a salesperson into a new territory
- Commission rates that may vary, as happens when the volume of sales exceeds certain targets
- Caps on the amount of commission paid to a departing employee, or payments based on certain requirements having been completed before the salesperson leaves the company
It can take a massive amount of manual accounting effort to calculate the compensation payable under such plans, and the results will likely contain errors. To avoid the labor and calculation errors, use an incentive compensation software package to compile the information automatically. These packages mitigate the accounting effort and reduce calculation errors, while still allowing the sales manager to maintain high levels of commission plan complexity.
This incentive compensation software operates independently from the accounting software, and so requires a custom-built data feed from the accounting database. The software uses a set of custom rules to compile the appropriate incentive payment, and presents the result in a specially-formatted commission statement, which can be delivered in an electronic format. Some of these plans also have a "what if" feature that can be used to model different scenarios, which is useful for tweaking the company commission plan to obtain specific results.
While the idea of incentive compensation software is compelling, an offsetting consideration is its price. The cost of the software, installation, and ongoing maintenance is considerable, and so is only a cost-effective solution for larger sales departments.