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Commissions Best Practices
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8–9 PERIODICALLY AUDIT COMMISSIONS PAID
Given the complexity of some commission structures, it comes as no surprise that
the sales staff is not always paid the correct commission amount. This is particularly
true of transition periods, where payment rates change or new salespeople take over
different sales territories. When this happens, there is confusion regarding the cor-
rect commission rates to pay on certain invoices or who to pay for each one. The
usual result is that there are some overpayments that go uncorrected; the sales staff
will closely peruse commission payments to make sure that underpayments do not
occur, so this is rarely a problem. In addition, there is a chance that overpayments
are made on a regular basis, since any continuing overpayment is unlikely to be
reported by the salesperson on the receiving end of this largesse.
The best way to review commissions for this problem is to schedule a periodic
internal audit of the commission calculations. This review can take the form of a
detailed analysis of a sampling of commission payments or a much simpler overall
review of the percentage of commissions paid out, with a more detailed review if
the percentage looks excessively high. Any problems discovered through this
process can result in some retraining of the commissions clerk, an adjustment in the
commission rates paid, or a reduction in the future payments to the sales staff until
any overpayments have been fully deducted from their pay. This approach requires
some time on the part of the internal audit staff, but does not need to be conducted
very frequently and so is not an expensive proposition. An occasional review is usu-
ally sufficient to find and correct any problems with commission overpayments.

Cost: Installation time:

8–10 INSTALL INCENTIVE COMPENSATION
MANAGEMENT SOFTWARE
Commission tracking for a large number of salespeople is an exceedingly com-
plex chore, especially when there are multiple sales plans with a variety of splits,
bonuses, overrides, caps, hurdles, guaranteed payments, and commission rates. This
task typically requires a massive amount of accounting staff time spent manipulating
electronic spreadsheets, and is highly error-prone. Most of the other best practices in
this chapter are designed to simplify the commission calculation structure in order to
reduce the amount of accounting effort. However, an automated alternative is
available that allows the sales manager to retain a high degree of commission plan
complexity while minimizing the manual calculation labor of the accounting staff.
The solution is to install incentive compensation management software, such
as that offered by Centiv, Synygy, and Callidus Software. It is a separate package
from the accounting software, and requires a custom data feed from the accounting
database, using the incoming data to build complex data-tracking models that churn
out exactly what each salesperson is to be paid, along with a commission statement.