Sprint …a cautionary tale. Beware the business-critical ramifications of badly managed sales compensation

Anyone happen to see the recent news item highlighting what can happen when companies engage in non-effective sales compensation management in December 2nd’s Information Week?

The article says “Sprint is facing a lawsuit from thousands of its store employees who say the wireless carrier has failed to pay them proper commissions.” It goes on to state that “19,000 former and current employees are potentially affected,” and that it was the integration of Sprint and Nextel’s back-end systems that led “to more than $5 million in lost commissions.” Ouch!

According to the article, court documents say that Sprint knew there was a computer problem, spent $10 million to fix it, and “did not acknowledge employees hadn’t been paid correct commission.” Double ouch.

From my perspective, regardless of whether the commissions were paid correctly or not, the damage is done. And it is considerable.

There’s nothing like having your employees this riled up – not to mention 19,000 of them. Hence the first question facing any company in this unfortunate position is how much trust – and indeed motivation – will their employees have going forward? There’s a lot of damage needing to be repaired – and that’s true whether you have 19,000 reps or 19. Then there’s the enormous financial impact around the settlement to deal with. And all the time and effort that will go into handling the case and its aftermath. And the potential for balance-sheet revisions and corporate financial restatements. And the erosion of shareholder and analyst confidence.

But the clincher is, this is the type of corporate mess that can so easily be avoided. Providing sales reps with real-time, web-based visibility into their commission plans can help nip a problem like this in the bud, long before it snowballs to class-action suit status. This visibility, combined with accurate, rules-based commissions calculation (emphasis on rules-based), is the foundation for effective sales compensation management.

And the bedrock on which this foundation rests is the effective integration of all the data used to determine compensation. Any competent compensation-management solution absolutely has to get this right. And, with the advent of Software-as-a-Service (SaaS) solutions, it doesn’t take a lot of costly on-premise software and expensive consultants to nail this particular kind of data integration either, at least not anymore.

Finally, complete compensation audit trails are mandatory, and entirely possible. The attorney representing Sprint’s store clerks alleged the company made the internal process for appealing shortages in commissions too “time-consuming and burdensome.”

Sprint is a reputable company, and it’s certainly not in its interest to purposefully, as the article has it, “shaft employees.” The company obviously needs to overhaul its current compensation-management process, and fast.

You don’t have to be the size of Sprint to take a lesson here. Sales compensation management is a business-critical function for any organization. It doesn’t pay to confuse, betray and anger the employees that feed you, no matter how inadvertently it may happen. And there’s certainly no excuse for it with state-of-the-art SaaS-based sales compensation management solutions that are available today.

The Rustling of Autumn Spreadsheets

Chill winds and the last rustling of leaves come even to Silicon Valley, eventually, along with the usual waves of nostalgia—for old friends, that first car, your first spreadsheet-managed compensation plan. No, I’m not losing it. The deal with nostalgia is that you can only get nostalgic over something once its time is past. And there’s nothing that fits that bill better than managing sales performance via spreadsheets. Like my first car, that particular paradigm is well past its prime and better remembered than relied on.

Today of course there’s another chill wind coursing around the globe: that of recession. And many companies of all sizes are finding themselves nostalgic for yesterday’s revenues, profits and forecasts. How long they’ll be forced to remain nostalgic depends on many factors, but one that stands out is sales performance. Happily, this is something companies can work on to improve, and an improvement here goes a long way.

It’s axiomatic that when performance measures align directly to business goals, sales reps on variable compensation are motivated not only to sell more, but also to sell more profitably. But companies are particularly challenged to achieve this alignment because of their traditional reliance on spreadsheets coupled with email and paper-based methods to manage sales compensation.

Companies that have moved off of manual methods will gleefully recite a whole litany of spreadsheet shortcomings, starting with how difficult, tedious and costly it is to create and administer effective comp plans in Excel. And they’ll tell you that these shortcomings extend to the error-prone nature of the beast; the lack of meaningful reporting, analysis and auditing capabilities; and how hard it is to collaborate and share with spreadsheets, yet how easy it is to confuse, confound and demoralize those you so desperately need to motivate.

The vast majority of companies that still use spreadsheets for compensation management know all or part of this in their hearts, but are likely asking themselves how they can justify the expense of an automated solution, especially given the uncertainty of the global economic climate.

My response is: how can you not? Especially now that inexpensive SaaS solutions for compensation management have taken the wind out of the sails of far more costly on-premise software solutions.

The net is, it’s time that companies tossed their sheaves of sales compensation spreadsheets to the winds. Be nostalgic about them if you want, but just get rid of them and automate. It will go a long way towards keeping you from having to be nostalgic about healthy top- and bottom-line growth.