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How To Eliminate “Shadow Accounting” With A More Reliable Incentive Compensation Process

July 28, 2021 | Evan Webster  
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If you ask experienced sales directors about how to keep sales reps motivated, “a competitive incentive compensation plan” is an answer you’ll hear a lot. That’s because the concept behind incentive compensation is simple: The more revenue your sales reps bring in, the more money they'll earn in commission.

But for those in sales operations positions or in finance roles that deal with payroll, incentive compensation management (ICM) is much more complicated and delicate. A simple missed decimal somewhere could lead to thousands in overpayment or underpayment—which is a fixable inconvenience at best, or a hellish legal nightmare at worst.   

In any case, unreliable ICM will demotivate your sales reps and turn them into “shadow accountants”—and that just slows down your revenue engine. This article will explore what shadow accounting really looks like on sales teams, with some tips on how to eliminate it with a more trustworthy incentive compensation process. 

What is Shadow Accounting and Why Is It Bad for Your Sales Team?

Shadow accounting is when your sales reps track their commission earnings on their own, independently from the official record, in order to verify or dispute their commission payouts.

A sales team full of shadow accountants creates a number of big problems, such as:

  • A culture of mistrust between sales reps and executive leadership
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  • Sales inefficiency, i.e. reps spending their time just verifying their commission rather than focusing on selling more and driving revenue for your business
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  • Decreased motivation among sales reps to exceed their revenue targets out of concern that they won’t be compensated properly anyway

Trust, efficiency and motivation are the lifeblood of any sales team—and the absence of any one of them means your business won’t reach its potential. You need to minimize shadow accounting to run an effective sales organization, so just follow the tips below and learn how to do it effectively.  

3 Best Practices for Conquering Shadow Accounting With Better ICM 

1. Automate Incentive Compensation Calculations By Integrating With Your CRM 

If you’re still using offline spreadsheets to calculate incentive compensation, the potential for manual errors is a whole lot higher. Copying and pasting deal data from your CRM is tedious as well. You’re better off spending that time on more valuable, forward-thinking analysis. 

But if you automate variable pay calculations via an integration between your CRM and compensation templates, you’ll be able to rest easy knowing the data you’re working with is correct. And because it’s your company’s sales leaders who are responsible for keeping CRM data clean, they won’t have to fall back to shadow accounting to ensure all their deals are accounted for.

2. Give Your Sales Reps Visibility With Personalized Incentive Compensation Reports 

This is the most effective way to build trust and credibility with your sales reps. If you empower them with real-time compensation reports that are personalized for them specifically, they’ll never have to waste time shadow accounting with an offline spreadsheet of their own. They’ll probably draw some inspiration from a detailed breakdown of their quota attainment as well—because as more deals flow into that report, that commission number will only get higher.

Here are some items to include in an incentive compensation report for your sales reps:

  • A line-by-line breakdown of every deal they’ve closed with the value of those deals flowing in from your CRM / ERP (see above)
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  • A summary of their incentive compensation rate, with details about how it’s applied to each deal
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  • An overview of their quota and on-target earnings
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  • A link to their signed compensation plan, for context

3. Leverage Compensation Dashboards to Assist With Sales and Revenue Planning

Similar to personalized reports for reps, compensation dashboards give sales leaders visibility into how their teams as a whole are performing against their targets. And if they have a real-time view of upcoming incentive compensation payouts—as well as a compensation forecast based on committed deals in your pipeline—sales leaders can participate in long-term strategic planning and empower your company’s executives with the data they need for decision making.  

Visual charts and graphs also make revenue metrics easier to understand. So, when incentive compensation is included in those dashboards as well, sales leaders can easily visualize how their team’s compensation payouts compare to the budgeted targets that were established at the start of the quarter. 

All of this will lead to less time spent shadow accounting—and more time turning prospects into happy, profitable customers.

 

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Evan Webster

Evan Webster

Evan is a creative storyteller with a passion for innovative technology. As an Area Sales Manager with Vena (and formerly a Content Marketing Specialist), Evan is always experimenting with new ways to inspire finance professionals so he can help them thrive in their roles as strategic, forward-thinking business partners.

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