Aurochs Blog

IC Centralization :Design and Build IC Guidance (Part 2) - Aurochs Software

By 2015-07-15 Incentive Compensation, Incentive Compensation Management, Centralization

In this part of the IC Centralization series, we will focus on the strategy to create a global incentive compensation plan framework and drive the design process from HQ.


IC Centralization

In the first part of this series, we talked about different aspects of HQ approved Incentive Compensation Management software. You can see more details here.

In the second part of this series, we will discuss the other aspect of the centralization process. HQ prefers to create a global incentive compensation plan design and structure. This may be considered as taking a “framework” approach from which regions and countries may pick from a menu of plan components. In doing this, the HQ attempts to standardize relevant compensation plans across its various geographies.

This aspect may receive more pushback based on the specifics of the structure. Local leadership in the geographies usually find this difficult to digest because of the dynamics of their local markets arising from governmental regulations, local business objectives and payor situations. They typically believe that driving the design from HQ takes the control out of their hands and generally doesn’t meet their local situation. This is especially accentuated in the European markets where the variation is significant. It also applies to developing and emerging markets e.g. the “MINT” countries.

Rather than a strict IC design flowing from the HQ to geographies it's recommended to use a composite approach. HQ communicates strategic guidelines, plan philosophy and global business objectives. The exact plan structure and details are left to the local leadership. The high level plan design framework can be shared with country affiliates. This meets the overall objective of an “80/20” approach whereby most of the framework is applicable from the center yet the customisation and tailoring is done locally.

Strategic Levers

  • Align business objectives – Focus on the right products & metrics
  • Pays for Performance – Sales people being paid for sales growth
  • Equal Earning Opportunity – Historical performance doesn’t act as a handicap for future earning potential
  • Financially Responsible – Final incentive payouts are in line with national brand performance and is generally predictable
  • Motivational & Engaging – IC plan rewards top performers while punishes low performers and pay them in line with industry benchmarks
  • Easy to Understand & Implement – IC plan can be executed using available resources and fully automated process can be defined for successful operations

Local Stakeholders

  • Finance
  • Sales Leadership
  • HR
  • Sales Operations / SFE
  • IT
  • Business Intelligence / Business Excellence
  • Legal

Involvement of the above stakeholders’ helps to answer relevant questions related to each of these strategic levers and also helps in the trade-offs needed to counteract any pressures between these guiding principles.

Such an approach which provides broader guidelines but allows flexibility to make local decisions meets both the HQ and local market's needs and is likely to have the best outcome.

Individual affiliate geographies can play a much broader role in defining specifics of the overall plan design such as participant role definition, product mix identification, plan structure design, and performance metric selection. As part of this approach, they are also required to report IC plan effectiveness parameters and levels of local stakeholders buy-in plus any exceptions to this to the HQ.

This composite approach ensures that individual country affiliates proactively think about compensation philosophy and business objectives. This helps them with following a robust process to identify design parameters, evaluate performance metrics and model plan performance resulting in effective IC plan design while allowing them to account fully and comprehensively for local market variations.

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