SAP White Paper

mySAP ERP

SAP INCENTIVE AND

COMMISSION MANAGEMENT
WITH mySAP ERP

 Copyright 2004 SAP AG. All rights reserved.

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CONTENTS
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Challenges of Todays Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meeting Your Organizations Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5
6
6
6
7

Designing Your Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Key Challenges in Designing a Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Compensation Gap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Implementing Your Compensation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deciding on a Remuneration Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executing Your Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participant Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Object Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remuneration Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement and Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Measuring Compensation Plan Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Analyzing Compensation Plan Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Integration with Customer Relationship Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9
9
10
10
11
11
11
11
11
11

SAP Incentive and Commission Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Benefits for Your Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits for Your Management Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits for Your Sales Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits for Your Administrative Staff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits for Your IT Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13
13
13
13
13
13

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

EXECUTIVE SUMMARY
Variable compensation plans, which at one time were
limited to a companys sales force and senior management,
play an increasingly important role at all organizational levels.
In todays economy, it is essential to align high-cost items like
your compensation plans and their administration with your
overall corporate goals.
You can greatly enhance your organizations productivity by
rewarding your employees with variable pay according to their
performance and business contributions. More important, you
can align desired behaviors with business strategy and help all
employees develop a connection between their contributions
and your organizations goals.

A good ICM solution can help you achieve those goals.

This white paper describes the applicability and functions associated with new incentive and commission software technologies.
It explores the many sales challenges in todays competitive market and describes some key considerations in designing and reviewing your compensation plan. It then investigates some of the
common issues associated with implementing an incentive and
compensation plan, and it provides an outline for implementing
such a plan. The final sections describe SAP Incentive and Commission Management and examine the many ways that the application can benefit your staff, managers, administrators, IT teams,
and the organization as a whole.

Incentive1 and commission management (ICM) has an important part to play in achieving positive business results. This is
true both for organizations that derive significant revenue from
an externally facing sales force (such as companies in the automotive, retail, telecommunications, insurance, and e-business
sectors) and for organizations that can benefit from a greater
focus on key performance indicators (such as project-driven
activities in the construction and IT sectors).
Various factors might motivate you to design a sales incentive
plan. Perhaps your company is in a highly innovative industry
in which an aggressive sales force is vital to entering and
penetrating 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 organizational
structure, dynamic sales channels, and frequent new-product
introductions. Perhaps you want to motivate your internal
workforce by replacing fixed-salary agreements with
performance-related remuneration.

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

THE CHALLENGES OF TODAYS

MARKETS
Compensation and its management are two of the largest
expenditures for many organizations. These costs include
dollars spent on actual compensation, as well as administrative
expenses and the costs of aligning compensation corporate
goals (including the opportunity costs of not achieving business
objectives).
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 of
incentive 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 corporate
performance, such technology can be especially beneficial in
helping your organization obtain maximum value from your
payroll.
In an era of Internet-enabled transactions, your business must be
able to transform rapidly or risk losing market share. No longer is
it sufficient to invest heavily in lengthy product development,
hoping the market will remain static long enough to reward your
R&D efforts. Succeeding in todays business markets requires
rapid concept-to-market timelines, and third-party alliances are
often needed to complete the sales chain. All channels affiliated
with this product-to-market process must be closely integrated
with your corporate strategy.
The speed of change in business methods today, and in the
delivery of business solutions, must be matched by an equally
rapid change in the system infrastructure that supports your
individual business processes. In implementing any compensation plan, your organization must overcome the gap between its
compensation strategy and the ability of its existing system
infrastructure to support that strategy.

FINANCE

SUPPLIER

Purchasing

Manufacturing

Marketing

Distribution

CUSTOMER
Contracts

Contracts
INTRANET
INTERNET

Figure 1: Product-to-Market Process

Whether your organization sells intangibles (such as financial

services) or goods (such as cars), an ICM solution can play a key
role in both your sales management process and in achieving
the overall business objectives of your organization. In todays
fast-moving business environment, many enterprises amend
their compensation plans annually. Your plans must also be
capable of evolutionary change that reflects the new ways in
which your business is conducted and the new products and
markets you must address. At the same time, your plans must
adapt readily to a shorter life cycle for those products and
markets.
You can elevate the sales process to a more strategic level by
encouraging your sales staff to be more sensitive to your organizations business needs and to find solutions that give added
value to customers. Increasingly, however, sales management
lacks a system infrastructure that is flexible and robust enough
to support these objectives.
One reason for the increased needs in system infrastructure
is that, in an effort to improve the performance of the organization as a whole, many forward-thinking organizations
have extended incentive-based compensation plans into company divisions that have historically received only fixed pay.

Such innovations have changed the rules about contribution

and reward, as well as motivation and retention. Whether the
net result has been new levels of productivity, efficiency, and
profitability or greater confusion and an inability to manage
as complexity increases depends largely on both the rules and
system support for the new compensation plans.

Meeting Your Organizations Vision

Any investment in organization-wide management tools is a

strategic decision. The management support provided by an
ICM solution helps you achieve an optimum balance among
alignment, cost control, and productivity.
ALIGNMENT

Aligning motivation and reward with organizational strengths

and direction can be a central force in the rapid evolution of the
global economy. Organizations must be able to work with such
metrics as product profitability, repeat business, and the time
from order to fulfillment. By establishing stakeholder-centric
compensation plans, along with the right management tools,
your organization can ensure that everyone is working toward
the same goals.

INCENTIVE AND
COMMISSION
MANAGEMENT

COST CONTROL

At a strategic level, incentives and commissions can help

improve employee performance, productivity, and morale
leading to better cost management. Incentive plans that are
both innovative and appropriate for the business are ideal for
communicating the goals of your organization, measuring performance, and rewarding strategically aligned behaviors. Smart
sales- and incentive-management technologies integrate sales
channels within a broader business model, motivating employees and increasing product quality, profitability, and customer
satisfaction.

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 and
promotes strategically desirable behaviors. The right incentives
make 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 the

following cost savings:
Improved productivity for commission administrators
because compensation administration becomes less labor
intensive, faster, and more accurate
Reduced overpayments, lessening a common problem for
complex organizations
Elimination of unauthorized or unintentional booster
commission rates for nonperformers

DESIGNING YOUR
COMPENSATION PLAN
Productivity

Automating ICM functions improves productivity by reducing

the time spent on managing the plan and rechecking error-prone
manual calculations. Developing reports on sales productivity
and commissions requires an understanding of the extended sales
process especially the alignment of internal sales considerations,
your companys key business imperatives, and the current fit with
systems developments and capabilities in the sales arena. Sales
management 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 forces
performance from several perspectives. You might produce a
rank order of performance, for example, or a table of greatest
percentage increases. With the flexibility to organize your data
in these ways, you can proactively manage sales, rather than
retrospectively view your performance. Ease of use in reporting
is key to giving individuals ready access to their relative ranks or
performance.
An ICM solution helps your organization motivate and manage
your employees through different types of remuneration.
By combining report-generation software with commissioncalculation tools, it can also help you process all transactions,
agreements, and data associated with your incentive compensation plan and generate swifter and more accurate sales reports.

Your organization must be clear about the roles and expectations for your sales force. This may include, for example, emphasizing the connection between business development and achieving sales volume targets, developing new business as opposed to
managing existing business, developing cross-selling opportunities, or following through with after-sales care. All these factors
combine to determine, for each sales group, the appropriate
balance between fixed-pay and variable-pay components, the
mix of incentive-pay arrangements (bonuses versus commissions), and the rules for calculating commissions and incentives.
Your managers, especially those in sales, cant achieve these
desired results without the necessary systems infrastructure.
With an ICM solution, you can adapt rapidly to changing business conditions and easily track the history of your incentive
and commission compensation plan.
Key Challenges in Designing a Compensation Plan

The first challenge for management in designing a compensation

plan is to align incentives in an evolutionary sales process that involves many areas of your organization. Such an alignment gives
your plan a contextual framework, allowing all staff members
(especially those who are not part of the sales force) to understand
the pay decisions that support the organizations values, culture,
and business strategy. A staff that understands your corporate
expectations and how individual members can benefit by
following your corporate strategy gives your organization a
competitive advantage.
The second challenge facing complex organizations today is to
develop a compensation plan that creates and harmonizes incentives for the many different parties involved in the sales process,
including associates, affiliates, distributors, and Web-based participants. An ICM solution should effectively handle compensation
for all parties, including those who are indirectly involved with
sales.

The Compensation Gap

Variable compensation and incentive plans previously restricted

to an organizations sales force are increasingly available to employees who are not salespeople. The plans have become both
a means for motivating and aligning employee behavior with
overall 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 organization
must capture and process has increased significantly. This, in
turn, has created a compensation gap: the gap between the compensation strategy and the ability of the systems infrastructure
to implement that strategy.
Even today, compensation planning tools often depend on
spreadsheets whose embedded macros and encryptions become
fragile and unwieldy when scaled beyond their very modest
capacities. This weakness is exacerbated when organizations allow
these tools to be managed locally, with no central control.
Surprisingly, a large number of otherwise sophisticated organizations still rely on this mode of compensation management. For
some time now, market demand has been strong for a flexible,
enterprise-applicable infrastructure that can handle large

DECISION SUPPORT

DATA STORAGE

A third challenge in designing a compensation plan is to ensure

that the plan is sufficiently responsive to changing market conditions and business priorities. A well-designed ICM solution meets
each of these strategic challenges. For example, because a variety
of parties may be involved in the sales transaction and commission
processes, calculation rules should be linked across all areas of
vested interest, and all compensation results and rule changes
should be quickly processed.

volumes of data and frequent changes to base-compensation

rules. An ICM solution should be able to deal both with large
volumes of data across an elongated sales process and with complex, multilevel compensation calculations.

OPERATIONAL PROCESSES

Your overall corporate strategy must align all internal and

external sales channels. For the many organizations that use
multichannel distribution, having timely, accurate information
makes it much easier to coordinate new sales goals and performance metrics. Although Web-enabled technologies can enhance
communication within your organization, the long-term success
of this approach depends on arranging the right information
around the right strategy or framework with minimum effort.

DECISION SUPPORT
Rules
Calculation

ICM
Accounts

SETTLEMENT & ACCRUALS

Figure 3: Integration of ICM Functions with Upstream and Downstream

Applications

Often, compensation systems must interface with multiple legacy

systems that may include sales operations data, financial systems,
human resource systems, customer relationship management
systems, and strategic enterprise management applications. Given
the importance of intelligent collaboration in todays economy,
your organization must be able to develop a business model that
can 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-processing
and financial systems with your customer relationship management, channel partner, and sales automation systems, an ICM
solution makes it easier to track, monitor, manage, and reward
the sales behaviors that are strategically imperative to your business. By helping you reward strategically aligned behavior, an ICM
solution links the people and processes in your organization with
your overall business goals.

IMPLEMENTING YOUR
COMPENSATION PLAN
Implementing an incentive and compensation management plan
is not a one-time event. It is an iterative, ongoing process that is
defined by a closed management loop model (see Figure 4).
Amend compensation plans
for future periods
ANALYZE

MEASURE
Measure
compensation
results
(per region,
product line,
customer
hierarchy . . .)

DECIDE
INCENTIVE AND
COMMISSION
MANAGEMENT

Design
compensation
plans aligned
with corporate
business strategy

EXECUTE
Calculate commissions
Calculate incentives
Prepare settlement operations

Figure 4: Closed Management Loop Model

Initially, your management team determines what compensation

strategy to use, making sure it is in line with the overall business
strategy of your organization. Information from the operational
systems specifies the activities for each member of the team who
is directly involved (such as the marketing or sales staff). With this
information and information about an individuals compensation
plan, an ICM solution can calculate commission. The result of
this calculation is posted in the system and prepared for settlement at the end of the compensation period that your management team has set.
You can then measure and analyze the commission information
to assess the effectiveness of both your compensation plan and
your organizations sales staff and processes. Based on the results
of this analysis and knowledge of any changes that have occurred
in the organizations business objectives and associated marketing
activities, your management team can then decide how to alter
the compensation plan.

Deciding on a Remuneration Strategy

An effective remuneration strategy reflects your overall business

strategy for both your product offerings (how you motivate
sales for certain product lines and market segments) and your
organization (how you motivate various individuals and groups
within your workforce). A complete ICM solution should offer a
calculation process that addresses both your corporate strategy
and the individual compensation programs within your
organization.
Your corporate strategy is defined by valuation rules. These rules
evaluate an object, such as a product, based on its profit contribution 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 compensation programs, according to the particular remuneration
rules for those individuals, to determine their exact commission
amounts. A complete ICM solution lets you define remuneration
rules for the compensating managers, organizational units, employees, partners, and other individuals and offers the following
features:
A flexible organizational structure
You should be able to represent the specific network or
hierarchy of your workforce that receives variable compensation and make multilevel calculations for variable compensation related to a single business transaction. For example, a
sales representative may receive a direct reward for a sale,
whereas the representatives manager may receive an indirect
reward for the same transaction, perhaps by gathering bonus
points in the commission account.
A master record for the commission recipient
You can manage all relevant data concerning remuneration for
a particular person or group within your organization through
a master record for the commission recipient.
A master record for the commission contract
A commission contract defines the rules of the remuneration
agreement between the organization and its business partners
(commission recipients); it contains all rules for calculating and

Executing Your Plan

Obviously, commissions and other incentives can be calculated

with various levels of granularity. That is, you can calculate them
for individual business transactions (such as the conclusion of a
sales contract) or at an aggregated level (based on quarterly sales
volume, for example).

Commission
Case

Business Partner

In this way, an ICM solution can reflect the specific compensation

plan you have designed. Integrating ICM functions with strategic
enterprise management makes it easy for senior management to
review the success of your compensation plan. As a result, management may amend the sales network or hierarchy, the commission contracts (either standard or individual), the sales channels
or products, and the calculation rules to ensure that your organization continues to meet its overall business objectives.

The results from this data processing can then be posted as commission documents. If the processing cant be completed, the
commission case is set to pending and forwarded to the work lists
of the commission administrators for manual handling. At the
end of the compensation period, the commission account and all
its documents are closed, and the relevant data is transferred to
the settlement system for payout to the recipients. The following
sections take a closer look at how the execution process works.

Commission
Activity

In the commission contract, you establish the relevant business

objects (such as a car sale or mobile phone subscription) and the
level of compensation for each transaction related to the object
that the commission recipient successfully concludes. The compensation can be scaled (increased for specific volumes of sales),
time bound (increased for sales made within a specified time period), or split between two or more commission recipients who are
working as a team.

Your upstream system should provide information for each

commission case, including data on business partners (such as
sales agents), business object (such as telecommunications
contracts), 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 commission
recipients)
Valuate the transaction for the relevant business object
Calculate remuneration for the commission recipients
Settle and disburse the remuneration

Business Object

processing commissions and bonuses. Each commission

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

Commission
Contact

Organization

Determine Participants
Valuate Objects
Calculate Remunerations

Post

Commission
Account

Settlement
Disburse Pay

Figure 5: Transactional Processes

10

Periodic
Calculation

Participant Determination

The first step in the execution process is to identify all the

commission recipients for a particular commission case. Data for
direct participants is transferred at the incoming interface. The
ICM solution then locates all indirect participants using information from the commission contract and the organizational
structure. Indirect participants might include managers who
receive remuneration when their staff members conduct
successful transactions.
Object Valuation

In valuing business objects, commission activity is considered

separately from the recipient. The valuation for a particular
product might vary over its life cycle. For example, at the beginning, valuation might be set high (resulting in a high commission for the recipient) to push a new product into the market.
The valuation could then be lowered when the product has
been successfully launched. The rules for valuation are specified
in the customizing menu and can be quickly adapted to new
remuneration strategies. You can keep track of changes in valuation because they are saved in historical versions of the
commission contracts.
Remuneration Calculation

Calculations of remuneration are based on the valuation results

and calculated for each direct commission and indirect commission 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).

tives. It should also guarantee minimum payouts and offsetting

compared with previous period payouts. The financial data can
then be transferred either to the relevant settlement system
(such as payroll or accounts payable) or to a third-party
settlement system.
Measuring Compensation Plan Results

Once an ICM solution has made the reimbursement calculations, it is important to collate the data for analysis and review.
A good ICM solution will allow you to access calculation details
from different views (by product or region, for example). It will
also allow you to export the information to any data-warehouse
solution, 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, its

important to review and analyze the information you have
gathered. This will help you determine which business partners
have been most successful and which compensation strategies
have been most effective in promoting the desired behaviors.
You can then use your analysis, along with the requirements for
any new product lines or marketing campaigns, to make whatever 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
organizations sales cycle and its compensation system.

Settlement and Disbursement

At the end of the compensation period, an ICM solution should

close the commission accounts and calculate both variable and
constant compensations. Constant compensation can be a flat
rate, such as office or telephone costs. Variable compensation
represents calculation results for both commissions and incen-

11

SALES CYCLE

COMPENSATION SYSTEM

The board of directors defines the companys sales and marketing strategy.

Commission recipients and their contracts are defined

A marketing campaign is initiated to promote a particular

product for a market segment in line with the sales strategy.

Rules are defined for the promoted products valuation and for
the 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

The opportunity triggers compensation (for example, for the

presales consultant, the interaction center agent, and the
manager).

(for example, the manager, interaction center agent, presales

consultant, sales representative, and customer service
representative).
Commission and incentive rules are defined according to the
sales strategy.

accordingly.

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

the lead, an opportunity is created.
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

The sales order triggers compensation (for example, the sales

representative receives direct compensation, and the manager
receives indirect compensation).

contract is signed.

Logistics execution takes place.

The sales bill is processed.
Collection takes place.
Assigned employees provide after-sales customer service and
complaint management and ensure the customer is satisfied.

The bill triggers compensation.

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

Figure 6: Integrating Customer Relationship Management Information

In this example, the sale becomes a collaborative effort between

five commission recipients: the manager (who receives indirect
compensation as a result of the sales staffs efforts), the interaction
center agent, the presales consultant, the sales representative, and
the customer service representative.
The commission recipients can check the system at any point,
using personalized Internet access to view the level of compensation they are due. This provides immediate reinforcement for positive behaviors.

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From a management perspective, this model is extremely

alluring. In addition to facilitating the management of internal
and external sales staff (and their contracts), it motivates staff to
update the data in the system regularly, ensuring that
management has the latest sales information at its disposal.

SAP INCENTIVE AND

COMMISSION MANAGEMENT
The SAP Incentive and Commission Management application
is a part of both the mySAP ERP and mySAP Customer Relationship Management (mySAP CRM) solutions. It incorporates
many of the important functionalities addressed above, delivering a complete solution for managing compensation and incentives across your organization. The application delivers benefits
at multiple levels of your organization.
Benefits for Your Organization

SAP designed the application to be highly flexible. You can easily

amend the calculation rules, ensuring that your compensation
plan remains synchronized with your organizations current business goals. The increased visibility and easy access to information
about earned and expected compensation can stimulate positive
culture changes in your organization. By providing timely feedback to staff members, you can better reinforce and reward
successful behaviors and improve motivation for future sales
strategies.
Benefits for Your Management Team

SAP Incentive and Commission Management helps you manage

your internal and external sales forces and define their contracts and agreements, as well as the organizational structure to
which they belong. It also provides a historical record of compensation changes. You can carry out evaluations of your sales
force based on various criteria by product, region, or department, for example. The ability to quickly amend calculation
rules provides key support for changes in your sales and marketing campaigns.
Benefits for Your Sales Staff

SAP Incentive and Commission Management delivers the tools

you need to provide accurate compensation that reflects the
success of individual sales staff and to make your incentive criteria more visible and understandable. Because the compensation
data is more accurate, your sales staff spends less time shadow
tracking and more time on crucial sales activities. Your staff also
has easy access to a historical record of their personal compensation changes.

Benefits for Your Administrative Staff

Your administrative staff benefits from a high level of automation

and from better and easier management of incentive and commission recipients, their contracts, and the organizational structure to which they belong. Being able to manage everything from
a central location makes it easy to amend your compensation
plan. SAP Incentive and Commission Management provides standard contracts, which make it easier to amend your compensation 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 management capabilities of mySAP ERP Human Capital Management
(mySAP ERP HCM), the accounts payable capability of mySAP
ERP, or any other SAP or third-party settlement system. Your IT
staff can process high volumes of data accurately and rapidly,
and because SAP Incentive and Commission Management stores
data in a central location, data maintenance and reporting are
greatly simplified.
SAP Incentive and Commission Management is scalable, so you
can transfer data at the transactional or aggregated level, which
further maximizes performance. The flexible definition of inbound and outbound interfaces lets your IT staff introduce
additional data without having to modify the calculation code.
You can also extend data fields without modifications, which
gives the IT staff maximum flexibility in addressing your specific
needs. In addition, the staff can define the calculation rules for
valuation, remuneration, and clearing to suit the requirements
of your organization.

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CONCLUSION

GLOSSARY OF TERMS

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

business object

The product or service for which incentives or commissions are

calculated (such as an insurance policy, a car, or a mobile phone
subscription)
business partner

SAP Incentive and Commission Management is a cross-industry

solution that lets you process incentives and commissions quickly
and adapt rapidly to changing business conditions and track the
history of your changes to incentive and commission rules and
rates. With SAP Incentive and Commission Management, you
can handle all the usual forms of sales remunerations, such as
commissions, brokerage fees, profit sharing, bonuses, and cancellations. Clear encapsulation and easy interfacing capabilities
ensure that SAP Incentive and Commission Management can be
seamlessly integrated into your IT environment and used with
both SAP and non-SAP solutions.

A cross-application entity that is specific to SAP solutions. In

the SAP Incentive and Commission Management application, it
refers to the commission recipient.

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 organizations
productivity

commission account

To learn more about how SAP Incentive and Commission Management can help your organization streamline its compensation
programs, visit swww.sap.com/erp

commission administrator

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closed management loop model

A four-step management model that reflects a continuous

improvement process
commission

The fee or percentage a sales representative receives for services

rendered

The area in which commission and incentive calculations are

stored prior to disbursement
commission activity

The action that triggers compensation (such as new business or

the renewal of business)

The staff member who administers the compensation plan

and master data, such as commission contracts and contract
partners

commission case

indirect commission

Information provided by the inbound systems that is needed

to execute the commission calculation such as information
about the business partner (for example, the responsible sales
rep), business object (such as a life insurance policy), and
activity (such as new business)

The fee or percentage an individual receives as a result of the

services others have rendered
indirect reward

The reward given to an individual who earns compensation

or incentives as a result of the activities of others

commission contract

The contract (based on the standard contract) that is held by

the commission recipient and outlines the terms of the
compensation agreement

standard contract

A template contract used for a group of commission

recipients to which individual agreements can be added

commission recipient

The business partner the person or organization that will

receive the commission or incentive according to the terms of
the commission contract
direct commission

The fee or percentage sales representatives receive for the services they render
direct reward

The reward given to individuals who earn compensation or

incentives as a result of their own activities
incentive

Period-based variable compensation (such as a performance

bonus)

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