As high street retailers prepare for the forthcoming summer sales period, Andrew Armstrong from Callidus Software argues that slashing prices by up to 50% to maximise sales is not the most effective way to improve business performance. Whilst in the short term this approach might produce impressive sales figures, retailers must consider whether in the long term this will in fact have a damaging effect on profit margins.

To address this issue, some retailers have introduced incentive and commission programmes designed to motivate employees to meet sales targets and improve service levels. It is estimated that between 12%-20% of a company's revenues are spent on compensation payments, but little attention is actually paid to the effectiveness of this spend. This is because the payment process itself is a monumental task and complex on many levels:

Different people are paid for the completion of different tasks.
Payment is made across functions, departments and geographies.
High volume payments are made. In some cases up to 10 million payments are made in a single month.
Payment is made across multiple systems and data feeds.

To illustrate how this works in practice, a mobile phone company with a large high street retail presence might reward individual staff members one month for selling a certain brand of mobile phone. Then the next month incentives might be allocated according to the overall performance of each store, with staff at one shop being paid 10% in commission and another only 2%. As a result, the finance team at this organisation will have the difficult and time-consuming task of managing several complex bonus and incentive payment schemes.

Despite these challenges, incentive management is rarely addressed with the kind of sophisticated software solution retailers employ to manage their supply chains or customer relationships. Many still struggle with spreadsheets, or trying to use other financial systems not designed for managing incentive compensation. As a result, companies can lose millions each year due to inaccuracies or mistakes in payouts, and risk de-motivating their valuable sales force. In addition, the lack of a proper solution prevents many enterprises from gaining maximum value from their incentive compensation programmes - the ability to strategically manage sales resources.

From an employee perspective, many are simply unclear about their achievements against goals and corresponding payments. Without visibility into incentive structures and payments resulting from sales activity, salespeople will spend valuable time undertaking 'shadow accounting.' They tend not to be motivated or focused on selling the retailers' most profitable products.

By simply paying the right employees the correct amount of compensation in a timely manner, retail organisations can transform their business and reap the rewards of increased sales and a highly motivated sales force working together to meet the goals of the business.

This isn't 'nirvana' but is what can be achieved today with the implementation of Enterprise Incentive Management (EIM) software. EIM enables decision-makers within the retail industry to more effectively manage incentive payments to employees. It can help retailers to better align incentive structures with corporate objectives, drive sales more strategically, improve payment processing efficiency and increase profits. Market leading EIM solutions have a built-in flexibility to allow enterprises to quickly release new product-lines, set appropriate sales forecasts and drive sales force performance to meet them.

In terms of future planning, EIM software can also give management the opportunity to undertake historical and modelling analysis to help accurately forecast exactly what should be paid to staff in commission payments to help drive the retail business forward. This can significantly aid in the optimum management and timing of markdowns and promotions.

Driving sales performance to meet business and profit objectives is a clear benefit of successful incentive management. It can aid retailers enormously in keeping their heads in these unsettling times, by helping to determine when and if discounting goods at any given time will be beneficial and profitable to the business.