Automating Variable Compensation - an Overview in Q and A form
What is it?
For the last twenty years, when asked what I do, I've cheerfully replied "I automate Variable Compensation". Wrinkled brows, blank stares, and courteous inquiry usually follow. I end up saying "You know, big companies have salespersons who get paid more or less depending on what they sell - commissions, bonuses, draw, etc.". Eventually the general idea is communicated. Usually saying something about how big the market is helps, pointing out that the volume of this variable compensation often exceeds a billion dollars for given industry leaders. The majority of folks have never much thought about what the cost of sales adds up to be.
This practice, of automating variable compensation, has traced its way through the markets as EIM (Enterpise Incentive Management), ICM (Incentive Compensation Management), SPM (Sales Performance Management) and will undoubtedly sprout new acronyms as the old ones lose fashion. Dynamically continuous variable incentivization? We have not seen the most amusing chapters, that much is sure. I'd like to call it VCA, because that's just so cut and dry.
Who uses it?
Sales, IT, Finance, HR. All use it, in varying proportion by industry. You could think of it as a hybrid function, where each of these constituencies must play some part in getting the best outcome. Rare is the implementation, and probably less successful, where each of these functions does not sit at the stakeholders table. Top line executives sometimes peek under the hood, but usually it's delegated one level under CXO, whatever X is.
How long has this been an industry unto itself? Can you provide a brief history of the market?
Not counting the many solutions developed by companies for themselves, probably not much more than twenty years. Once it was realized that this was a large blue ocean opportunity, significant investment capital flowed to it. Divergent evolution followed across the years, with some companies targeting smaller business and others larger, some companies targeting specific markets like insurance or pharmecueticals, while others tried to remain solution domain agnostic. The cloud twist eventually got into it, which really had little to do with the superior practice of VCA per se so much as real cost/benefit arguments. Most solutions now lean cloudward but you can get a nice earthbound implementation if that's what you need.
What good does it do?
The traditional benefits, cited in the business cases of variable comp automaters, have been
- increased accuracy,
- better accesibility and security,
- enhanced auditability,
- greater productivty of the sales force,
- providing a path to internationalization,
- flexibility to keep the comp programs aligned with changing market conditions,
- easier and more powerful administrative capabilities,
- virtually limitless computational power,
- a gold mine of insight laden analytical potential
- when delivered via cloud/subscription, a more predicable cost basis and upgrade path.
As of 2015 is this a growth industry, is it a stable industry?
Given the increasing market trends toward expanding the population of those who are paid for performance, and given the incomplete adoption of vendor-created VCA tools outside of the US, yes, the industry could grow meaningfully for another 10 or twenty years. Is it a stable industry? Yes, resoundingly. Vendors continue to enhance the value of their offereings and the competition induces meaningful churn. There are not so many vendor provided comp systems that have been in continuous use for longer than a person might use a car. And that's probably for the good all around, as a ten year old version of software/systems of this nature will only rarely approach the performance of the present state of the art.
Could we have a series of discussions that describe solution challenges, best practices, and real world examples?
I thought you'd never ask. Thank you for taking the time to attend these general remarks. Please find those discussions ongoing at MeedPartners.com