SAP® INCENTIVE ANDCOMMISSION MANAGEMENT WITH mySAP™ ERP

SAP White PapermySAP ERP

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Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

The Challenges of Today’s Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Meeting Your Organization’s Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6– Alignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6– Cost Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6– Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Designing Your Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Key Challenges in Designing a Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7The Compensation Gap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Implementing Your Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Deciding on a Remuneration Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Executing Your Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10– Participant Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10– Object Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11– Remuneration Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11– Settlement and Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Measuring Compensation Plan Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Analyzing Compensation Plan Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Integration with Customer Relationship Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

SAP Incentive and Commission Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Benefits for Your Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Benefits for Your Management Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Benefits for Your Sales Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Benefits for Your Administrative Staff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Benefits for Your IT Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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CONTENTS

Variable compensation plans, which at one time were limited to a company’s sales force and senior management, play an increasingly important role at all organizational levels.In today’s economy, it is essential to align high-cost items likeyour compensation plans and their administration with youroverall corporate goals.

You can greatly enhance your organization’s productivity byrewarding your employees with variable pay according to theirperformance and business contributions. More important, youcan align desired behaviors with business strategy and help allemployees develop a connection between their contributionsand your organization’s goals.

Incentive1 and commission management (ICM) has an impor-tant part to play in achieving positive business results. This istrue both for organizations that derive significant revenue froman externally facing sales force (such as companies in the auto-motive, retail, telecommunications, insurance, and e-businesssectors) and for organizations that can benefit from a greaterfocus on key performance indicators (such as project-drivenactivities in the construction and IT sectors).

Various factors might motivate you to design a sales incentiveplan. Perhaps your company is in a highly innovative industry in which an aggressive sales force is vital to entering andpenetrating the market with new products. Maybe you want to change your current incentive plan to encourage employees to obtain specific results, such as retaining existing business.Maybe your company has a fast-changing organizationalstructure, dynamic sales channels, and frequent new-productintroductions. Perhaps you want to motivate your internal workforce by replacing fixed-salary agreements withperformance-related remuneration.

A good ICM solution can help you achieve those goals.

This white paper describes the applicability and functions asso-ciated with new incentive and commission software technologies.It explores the many sales challenges in today’s competitive mar-ket and describes some key considerations in designing and re-viewing your compensation plan. It then investigates some of thecommon issues associated with implementing an incentive andcompensation plan, and it provides an outline for implementingsuch a plan. The final sections describe SAP® Incentive and Com-mission Management and examine the many ways that the appli-cation can benefit your staff, managers, administrators, IT teams,and the organization as a whole.

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EXECUTIVE SUMMARY

1 See the glossary at the end of this paper for a description of this and other terms set in bold type.

Figure 1: Product-to-Market Process

Whether your organization sells intangibles (such as financialservices) or goods (such as cars), an ICM solution can play a keyrole in both your sales management process and in achievingthe overall business objectives of your organization. In today’sfast-moving business environment, many enterprises amendtheir compensation plans annually. Your plans must also becapable of evolutionary change that reflects the new ways inwhich your business is conducted and the new products andmarkets you must address. At the same time, your plans mustadapt readily to a shorter life cycle for those products and markets.

You can elevate the sales process to a more strategic level byencouraging your sales staff to be more sensitive to your orga-nization’s business needs and to find solutions that give addedvalue to customers. Increasingly, however, sales managementlacks a system infrastructure that is flexible and robust enoughto support these objectives.

One reason for the increased needs in system infrastructure is that, in an effort to improve the performance of the or-ganization as a whole, many forward-thinking organizationshave extended incentive-based compensation plans into com-pany divisions that have historically received only fixed pay.

INTERNET

INTRANET

SUPPLIER Purchas-ing

Manu-facturing Marketing Distri-

butionCon-tracts

CUSTOMER

Con-tracts

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Compensation and its management are two of the largestexpenditures for many organizations. These costs include dollars spent on actual compensation, as well as administrativeexpenses and the costs of aligning compensation corporategoals (including the opportunity costs of not achieving businessobjectives).

The most effective compensation plans – and the software systems that support them – evolve with your organization and are immediately scalable to accommodate changes, such as expansion into new territories, sales channel variations, or the introduction of new products. The new generation ofincentive and compensation management (ICM) software can help both the sales force and the organization as a whole. By ensuring that variable pay is leveraged to improve corporateperformance, such technology can be especially beneficial inhelping your organization obtain maximum value from yourpayroll.

In an era of Internet-enabled transactions, your business must beable to transform rapidly or risk losing market share. No longer isit sufficient to invest heavily in lengthy product development,hoping the market will remain static long enough to reward yourR&D efforts. Succeeding in today’s business markets requiresrapid concept-to-market timelines, and third-party alliances areoften needed to complete the sales chain. All channels affiliatedwith this product-to-market process must be closely integratedwith your corporate strategy.

The speed of change in business methods today, and in thedelivery of business solutions, must be matched by an equallyrapid change in the system infrastructure that supports yourindividual business processes. In implementing any compensa-tion plan, your organization must overcome the gap between itscompensation strategy and the ability of its existing systeminfrastructure to support that strategy.

THE CHALLENGES OF TODAY’SMARKETS

FINANCE

Such innovations have changed the rules about contributionand reward, as well as motivation and retention. Whether thenet result has been new levels of productivity, efficiency, andprofitability or greater confusion and an inability to manage as complexity increases depends largely on both the rules andsystem support for the new compensation plans.

Aligning motivation and reward with organizational strengthsand direction can be a central force in the rapid evolution of theglobal economy. Organizations must be able to work with suchmetrics as product profitability, repeat business, and the timefrom order to fulfillment. By establishing stakeholder-centriccompensation plans, along with the right management tools,your organization can ensure that everyone is working towardthe same goals.

At a strategic level, incentives and commissions can helpimprove employee performance, productivity, and morale –leading to better cost management. Incentive plans that areboth innovative and appropriate for the business are ideal forcommunicating the goals of your organization, measuring per-formance, and rewarding strategically aligned behaviors. Smartsales- and incentive-management technologies integrate saleschannels within a broader business model, motivating employ-ees and increasing product quality, profitability, and customersatisfaction.

Meeting Your Organization’s Vision

Any investment in organization-wide management tools is astrategic decision. The management support provided by anICM solution helps you achieve an optimum balance amongalignment, cost control, and productivity.

Figure 2: The Balance Among Alignment, Cost Control, and Productivity

Alignment

Organizational alignment and focus greatly increases the chance that your enterprise will achieve its strategic goals. A well-conceived incentive compensation plan motivates andpromotes strategically desirable behaviors. The right incentivesmake counterproductive agendas hard to justify and sustain, promoting collaborative effort in pursuit of a shared organization-wide goal.

Cost Control

Automated sales compensation systems produce primarily thefollowing cost savings:

• Improved productivity for commission administratorsbecause compensation administration becomes less laborintensive, faster, and more accurate

• Reduced overpayments, lessening a common problem forcomplex organizations

• Elimination of unauthorized or unintentional booster commission rates for nonperformers

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INCENTIVE ANDCOMMISSIONMANAGEMENT

ALIGNMENT

COST CONTROL PRODUCTIVITY

Productivity

Automating ICM functions improves productivity by reducingthe time spent on managing the plan and rechecking error-pronemanual calculations. Developing reports on sales productivityand commissions requires an understanding of the extended salesprocess – especially the alignment of internal sales considerations,your company’s key business imperatives, and the current fit withsystems developments and capabilities in the sales arena. Salesmanagement reports should thus provide the following:

• Timely reporting

• Actionable data

• Ease of use

• Ease of access

• Accuracy

Actionable data in management reports shows your sales force’sperformance from several perspectives. You might produce arank order of performance, for example, or a table of greatestpercentage increases. With the flexibility to organize your datain these ways, you can proactively manage sales, rather than retrospectively view your performance. Ease of use in reportingis key to giving individuals ready access to their relative ranks orperformance.

An ICM solution helps your organization motivate and manageyour employees through different types of remuneration. By combining report-generation software with commission-calculation tools, it can also help you process all transactions,agreements, and data associated with your incentive compensa-tion plan and generate swifter and more accurate sales reports.

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Your organization must be clear about the roles and expecta-tions for your sales force. This may include, for example, empha-sizing the connection between business development and achiev-ing sales volume targets, developing new business as opposed tomanaging existing business, developing cross-selling opportuni-ties, or following through with after-sales care. All these factorscombine to determine, for each sales group, the appropriate balance between fixed-pay and variable-pay components, themix of incentive-pay arrangements (bonuses versus commis-sions), and the rules for calculating commissions and incentives.

Your managers, especially those in sales, can’t achieve thesedesired results without the necessary systems infrastructure.With an ICM solution, you can adapt rapidly to changing busi-ness conditions and easily track the history of your incentiveand commission compensation plan.

Key Challenges in Designing a Compensation Plan

The first challenge for management in designing a compensationplan is to align incentives in an evolutionary sales process that in-volves many areas of your organization. Such an alignment givesyour plan a contextual framework, allowing all staff members(especially those who are not part of the sales force) to understandthe pay decisions that support the organization’s values, culture,and business strategy. A staff that understands your corporateexpectations – and how individual members can benefit byfollowing your corporate strategy – gives your organization acompetitive advantage.

The second challenge facing complex organizations today is todevelop a compensation plan that creates and harmonizes incen-tives for the many different parties involved in the sales process,including associates, affiliates, distributors, and Web-based partici-pants. An ICM solution should effectively handle compensationfor all parties, including those who are indirectly involved withsales.

DESIGNING YOURCOMPENSATION PLAN

volumes of data and frequent changes to base-compensationrules. An ICM solution should be able to deal both with large volumes of data across an elongated sales process and with com-plex, multilevel compensation calculations.

Figure 3: Integration of ICM Functions with Upstream and DownstreamApplications

Often, compensation systems must interface with multiple legacysystems that may include sales operations data, financial systems,human resource systems, customer relationship management systems, and strategic enterprise management applications. Giventhe importance of intelligent collaboration in today’s economy,your organization must be able to develop a business model thatcan accommodate Internet connectivity, a range of legacy systems,and all combinations of upstream and downstream interfaces in a wide-ranging sales and supply process.

By integrating data and information from your sales-processingand financial systems with your customer relationship manage-ment, channel partner, and sales automation systems, an ICMsolution makes it easier to track, monitor, manage, and rewardthe sales behaviors that are strategically imperative to your busi-ness. By helping you reward strategically aligned behavior, an ICMsolution links the people and processes in your organization withyour overall business goals.

Your overall corporate strategy must align all internal and external sales channels. For the many organizations that use multichannel distribution, having timely, accurate informationmakes it much easier to coordinate new sales goals and perfor-mance metrics. Although Web-enabled technologies can enhancecommunication within your organization, the long-term successof this approach depends on arranging the right informationaround the right strategy or framework with minimum effort.

A third challenge in designing a compensation plan is to ensurethat the plan is sufficiently responsive to changing market condi-tions and business priorities. A well-designed ICM solution meetseach of these strategic challenges. For example, because a varietyof parties may be involved in the sales transaction and commissionprocesses, calculation rules should be linked across all areas ofvested interest, and all compensation results and rule changesshould be quickly processed.

The Compensation Gap

Variable compensation and incentive plans – previously restrictedto an organization’s sales force – are increasingly available to em-ployees who are not salespeople. The plans have become both a means for motivating and aligning employee behavior withoverall corporate strategy and a method for ensuring that your an organization can afford the compensation for such behavior.As a result, the volume of information that your organizationmust capture and process has increased significantly. This, inturn, has created a compensation gap: the gap between the com-pensation strategy and the ability of the systems’ infrastructure to implement that strategy.

Even today, compensation planning tools often depend onspreadsheets whose embedded macros and encryptions becomefragile and unwieldy when scaled beyond their very modestcapacities. This weakness is exacerbated when organizations allowthese tools to be managed locally, with no central control.Surprisingly, a large number of otherwise sophisticated organiza-tions still rely on this mode of compensation management. Forsome time now, market demand has been strong for a flexible,enterprise-applicable infrastructure that can handle large

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SETTLEMENT & ACCRUALS

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DECISION SUPPORT

DECISION SUPPORT

Calculation ICMRules

Accounts

Implementing an incentive and compensation management planis not a one-time event. It is an iterative, ongoing process that isdefined by a closed management loop model (see Figure 4).

Figure 4: Closed Management Loop Model

Initially, your management team determines what compensationstrategy to use, making sure it is in line with the overall businessstrategy of your organization. Information from the operationalsystems specifies the activities for each member of the team who is directly involved (such as the marketing or sales staff). With thisinformation and information about an individual’s compensationplan, an ICM solution can calculate commission. The result ofthis calculation is posted in the system and prepared for settle-ment at the end of the compensation period that your manage-ment team has set.

You can then measure and analyze the commission informationto assess the effectiveness of both your compensation plan andyour organization’s sales staff and processes. Based on the resultsof this analysis and knowledge of any changes that have occurredin the organization’s business objectives and associated marketingactivities, your management team can then decide how to alterthe compensation plan.

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Deciding on a Remuneration Strategy

An effective remuneration strategy reflects your overall businessstrategy – for both your product offerings (how you motivatesales for certain product lines and market segments) and yourorganization (how you motivate various individuals and groupswithin your workforce). A complete ICM solution should offer acalculation process that addresses both your corporate strategyand the individual compensation programs within your organization.

Your corporate strategy is defined by valuation rules. These rulesevaluate an object, such as a product, based on its profit con-tribution – differentiating key products from peripheral products.The valuation occurs independent of the individuals involved,which lets you push activities for specific products.

Valuation results are included in calculations for individual com-pensation programs, according to the particular remunerationrules for those individuals, to determine their exact commissionamounts. A complete ICM solution lets you define remunerationrules for the compensating managers, organizational units, em-ployees, partners, and other individuals and offers the followingfeatures:

• A flexible organizational structureYou should be able to represent the specific network or hierarchy of your workforce that receives variable compensa-tion and make multilevel calculations for variable compensa-tion related to a single business transaction. For example, asales representative may receive a direct reward for a sale,whereas the representative’s manager may receive an indirectreward for the same transaction, perhaps by gathering bonuspoints in the commission account.

• A master record for the commission recipientYou can manage all relevant data concerning remuneration fora particular person or group within your organization througha master record for the commission recipient.

• A master record for the commission contract A commission contract defines the rules of the remunerationagreement between the organization and its business partners(commission recipients); it contains all rules for calculating and

INCENTIVE AND COMMISSION MANAGEMENT

Amend compensation plansfor future periods

Measure compensation

results (per region, product line,

customer hierarchy . . .)

MEASURE DECIDE

ANALYZE

EXECUTE

Design compensationplans aligned

with corporate business strategy

Calculate commissionsCalculate incentives

Prepare settlement operations

IMPLEMENTING YOURCOMPENSATION PLAN

Your upstream system should provide information for each commission case, including data on business partners (such assales agents), business object (such as telecommunicationscontracts), and business activities (such as new sales, up-selling, or cross-selling by business partners). After receiving this data, an ICM solution should automatically:

• Determine the participants (business partners or commissionrecipients)

• Valuate the transaction for the relevant business object

• Calculate remuneration for the commission recipients

• Settle and disburse the remuneration

The results from this data processing can then be posted as com-mission documents. If the processing can’t be completed, thecommission case is set to pending and forwarded to the work listsof the commission administrators for manual handling. At theend of the compensation period, the commission account and allits documents are closed, and the relevant data is transferred tothe settlement system for payout to the recipients. The followingsections take a closer look at how the execution process works.

Figure 5: Transactional Processes

processing commissions and bonuses. Each commissioncontract is based on a template that defines common rules for specific groups. All managers within your companymight, therefore, have individual commission contracts that are derived from the same standard contract. Both thecommission contract and the relevant business partner areassigned to a specific place in the organizational structure.You can store versions of commission contracts (contract versions for successive years, for example) according to thedates and times that they were created and validated.

In the commission contract, you establish the relevant businessobjects (such as a car sale or mobile phone subscription) and thelevel of compensation for each transaction related to the objectthat the commission recipient successfully concludes. The com-pensation can be scaled (increased for specific volumes of sales),time bound (increased for sales made within a specified time peri-od), or split between two or more commission recipients who areworking as a team.

In this way, an ICM solution can reflect the specific compensationplan you have designed. Integrating ICM functions with strategicenterprise management makes it easy for senior management toreview the success of your compensation plan. As a result, man-agement may amend the sales network or hierarchy, the commis-sion contracts (either standard or individual), the sales channelsor products, and the calculation rules to ensure that your organi-zation continues to meet its overall business objectives.

Executing Your Plan

Obviously, commissions and other incentives can be calculatedwith various levels of granularity. That is, you can calculate themfor individual business transactions (such as the conclusion of asales contract) or at an aggregated level (based on quarterly salesvolume, for example).

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Com-missionCase

Com-mission Contact

Organiza-tion

Disburse Pay

Commis-sion

Account

Determine ParticipantsValuate Objects

Calculate RemunerationsPost

Bus

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bjec

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omm

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Settlement

Periodic Calculation

tives. It should also guarantee minimum payouts and offsettingcompared with previous period payouts. The financial data canthen be transferred either to the relevant settlement system (such as payroll or accounts payable) or to a third-partysettlement system.

Measuring Compensation Plan Results

Once an ICM solution has made the reimbursement calcula-tions, it is important to collate the data for analysis and review.A good ICM solution will allow you to access calculation detailsfrom different views (by product or region, for example). It willalso allow you to export the information to any data-warehousesolution, where it can be compared with other information,such as relevant sales statistics.

Analyzing Compensation Plan Data

Before making any changes to your compensation plan, it’s important to review and analyze the information you havegathered. This will help you determine which business partnershave been most successful and which compensation strategieshave been most effective in promoting the desired behaviors.You can then use your analysis, along with the requirements forany new product lines or marketing campaigns, to make what-ever changes are needed to your compensation plan.

Integration with Customer Relationship

Management

How do you integrate an ICM solution with your sales cycle?Figure 6 shows one example of the interaction between an organization’s sales cycle and its compensation system.

Participant Determination

The first step in the execution process is to identify all thecommission recipients for a particular commission case. Data fordirect participants is transferred at the incoming interface. TheICM solution then locates all indirect participants using infor-mation from the commission contract and the organizationalstructure. Indirect participants might include managers whoreceive remuneration when their staff members conductsuccessful transactions.

Object Valuation

In valuing business objects, commission activity is consideredseparately from the recipient. The valuation for a particularproduct might vary over its life cycle. For example, at the begin-ning, valuation might be set high (resulting in a high commis-sion for the recipient) to push a new product into the market.The valuation could then be lowered when the product hasbeen successfully launched. The rules for valuation are specifiedin the customizing menu and can be quickly adapted to newremuneration strategies. You can keep track of changes in valu-ation because they are saved in historical versions of thecommission contracts.

Remuneration Calculation

Calculations of remuneration are based on the valuation resultsand calculated for each direct commission and indirect com-mission recipient according to individual remuneration rules.The calculations are then posted to the commission accounts.The remuneration can be either monetary or nonmonetary(such as bonus points for sales competitions).

Settlement and Disbursement

At the end of the compensation period, an ICM solution shouldclose the commission accounts and calculate both variable andconstant compensations. Constant compensation can be a flatrate, such as office or telephone costs. Variable compensationrepresents calculation results for both commissions and incen-

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Figure 6: Integrating Customer Relationship Management Information

In this example, the sale becomes a collaborative effort betweenfive commission recipients: the manager (who receives indirectcompensation as a result of the sales staff’s efforts), the interactioncenter agent, the presales consultant, the sales representative, andthe customer service representative.

The commission recipients can check the system at any point,using personalized Internet access to view the level of compensa-tion they are due. This provides immediate reinforcement for pos-itive behaviors.

From a management perspective, this model is extremelyalluring. In addition to facilitating the management of internaland external sales staff (and their contracts), it motivates staff toupdate the data in the system regularly, ensuring thatmanagement has the latest sales information at its disposal.

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SALES CYCLE COMPENSATION SYSTEM

The board of directors defines the company’s sales and market-ing strategy.

• Commission recipients and their contracts are defined (for example, the manager, interaction center agent, presalesconsultant, sales representative, and customer service representative).

• Commission and incentive rules are defined according to thesales strategy.

A marketing campaign is initiated to promote a particularproduct for a market segment in line with the sales strategy.

Rules are defined for the promoted product’s valuation and forthe variable compensation of commission recipients.

• Prospects are contacted.• The interaction center agent calls to qualify the lead.• If the prospect is interested, the lead qualification level is set

accordingly.• The responsible sales rep is determined. If the sales rep accepts

the lead, an opportunity is created.

The opportunity triggers compensation (for example, for thepresales consultant, the interaction center agent, and the manager).

Sales activities occur for the opportunity. Various activities trigger compensation (for example, a customer demonstration or customer visits)

A quotation is presented. The quotation triggers compensation.

• If the prospect makes a positive decision, a sales order or contract is signed.

• Logistics execution takes place.

The sales order triggers compensation (for example, the salesrepresentative receives direct compensation, and the managerreceives indirect compensation).

• The sales bill is processed.• Collection takes place.

• The bill triggers compensation.• Collection triggers compensation.

Assigned employees provide after-sales customer service andcomplaint management and ensure the customer is satisfied.

Positive feedback triggers compensation (for example, for thesales representative and customer service representative) or negative feedback (trigger for claw-back).

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SAP INCENTIVE ANDCOMMISSION MANAGEMENTThe SAP Incentive and Commission Management application is a part of both the mySAP™ ERP and mySAP Customer Rela-tionship Management (mySAP CRM) solutions. It incorporatesmany of the important functionalities addressed above, deliver-ing a complete solution for managing compensation and incen-tives across your organization. The application delivers benefitsat multiple levels of your organization.

Benefits for Your Organization

SAP designed the application to be highly flexible. You can easilyamend the calculation rules, ensuring that your compensationplan remains synchronized with your organization’s current busi-ness goals. The increased visibility and easy access to informationabout earned and expected compensation can stimulate positiveculture changes in your organization. By providing timely feed-back to staff members, you can better reinforce and rewardsuccessful behaviors and improve motivation for future salesstrategies.

Benefits for Your Management Team

SAP Incentive and Commission Management helps you manageyour internal and external sales forces and define their con-tracts and agreements, as well as the organizational structure towhich they belong. It also provides a historical record of com-pensation changes. You can carry out evaluations of your salesforce based on various criteria – by product, region, or depart-ment, for example. The ability to quickly amend calculationrules provides key support for changes in your sales and market-ing campaigns.

Benefits for Your Sales Staff

SAP Incentive and Commission Management delivers the toolsyou need to provide accurate compensation that reflects thesuccess of individual sales staff and to make your incentive crite-ria more visible and understandable. Because the compensationdata is more accurate, your sales staff spends less time shadowtracking and more time on crucial sales activities. Your staff alsohas easy access to a historical record of their personal compen-sation changes.

Benefits for Your Administrative Staff

Your administrative staff benefits from a high level of automationand from better and easier management of incentive and com-mission recipients, their contracts, and the organizational struc-ture to which they belong. Being able to manage everything froma central location makes it easy to amend your compensationplan. SAP Incentive and Commission Management provides stan-dard contracts, which make it easier to amend your compensa-tion plan and to create new compensation contracts.

Benefits for Your IT Staff

You can use SAP Incentive and Commission Management as a stand-alone tool or as part of your mySAP ERP solution. The application works with the employee transaction manage-ment capabilities of mySAP ERP Human Capital Management(mySAP ERP HCM), the accounts payable capability of mySAPERP, or any other SAP or third-party settlement system. Your ITstaff can process high volumes of data accurately and rapidly,and because SAP Incentive and Commission Management storesdata in a central location, data maintenance and reporting aregreatly simplified.

SAP Incentive and Commission Management is scalable, so youcan transfer data at the transactional or aggregated level, whichfurther maximizes performance. The flexible definition of in-bound and outbound interfaces lets your IT staff introduceadditional data without having to modify the calculation code.You can also extend data fields without modifications, whichgives the IT staff maximum flexibility in addressing your specificneeds. In addition, the staff can define the calculation rules forvaluation, remuneration, and clearing to suit the requirementsof your organization.

You face many sales challenges, and you must consider key issueswhen designing, reviewing, and implementing sales incentivesand compensation across your organization. SAP Incentive andCommission Management can benefit your staff, managers,administrators, IT teams, and organization in many ways.

SAP Incentive and Commission Management is a cross-industrysolution that lets you process incentives and commissions quicklyand adapt rapidly to changing business conditions and track thehistory of your changes to incentive and commission rules andrates. With SAP Incentive and Commission Management, you can handle all the usual forms of sales remunerations, such ascommissions, brokerage fees, profit sharing, bonuses, and can-cellations. Clear encapsulation and easy interfacing capabilitiesensure that SAP Incentive and Commission Management can beseamlessly integrated into your IT environment and used withboth SAP and non-SAP solutions.

With SAP Incentive and Commission Management, you have the right tools to:

• Handle different kinds of variable compensations

• Lead your sales force (and, therefore, gain control over important financial budgets)

• Motivate your people and increase your organization’s productivity

To learn more about how SAP Incentive and Commission Man-agement can help your organization streamline its compensationprograms, visit swww.sap.com/erp

business object

The product or service for which incentives or commissions arecalculated (such as an insurance policy, a car, or a mobile phonesubscription)

business partner

A cross-application entity that is specific to SAP solutions. Inthe SAP Incentive and Commission Management application, itrefers to the commission recipient.

closed management loop model

A four-step management model that reflects a continuousimprovement process

commission

The fee or percentage a sales representative receives for servicesrendered

commission account

The area in which commission and incentive calculations arestored prior to disbursement

commission activity

The action that triggers compensation (such as new business orthe renewal of business)

commission administrator

The staff member who administers the compensation plan and master data, such as commission contracts and contractpartners

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CONCLUSION GLOSSARY OF TERMS

commission case

Information provided by the inbound systems that is needed to execute the commission calculation – such as informationabout the business partner (for example, the responsible salesrep), business object (such as a life insurance policy), and activity (such as new business)

commission contract

The contract (based on the standard contract) that is held bythe commission recipient and outlines the terms of thecompensation agreement

commission recipient

The business partner – the person or organization that willreceive the commission or incentive according to the terms ofthe commission contract

direct commission

The fee or percentage sales representatives receive for the servic-es they render

direct reward

The reward given to individuals who earn compensation orincentives as a result of their own activities

incentive

Period-based variable compensation (such as a performancebonus)

indirect commission

The fee or percentage an individual receives as a result of theservices others have rendered

indirect reward

The reward given to an individual who earns compensation or incentives as a result of the activities of others

standard contract

A template contract used for a group of commissionrecipients to which individual agreements can be added

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