Lately I've been hearing about surprise ‘overpayments' and how distressing they can be. Certainly as a CEO I live by the mantra "cash is king" and the last thing I would want to do is pay too much for anything. So helping companies avoid such surprises has been an important part of my goal of delivering software to help people manage their sales compensation.

In the past, I was focused on eliminating overpayments by reducing errors in commission calculations through automation. I have worked with many companies who found that when they replaced their spreadsheets with a commission system there were all kinds of overpayments to reps based on human error intrinsic in the use of spreadsheets. Of course, sales reps are MUCH less likely to report overpayments of this type so the automation process uncovered many such flaws. One company I worked with said "We know we are overpaying about $2M per year. We don't plan to recover it, but can you please make it stop?"

Now, with Makana's focus on plan design, I've discovered a more disturbing ‘overpayment'. Many of the companies we are working with now did not understand how to model their cost exposure prior to rolling out new compensation plans to their employees and channel partners. So they accidentally designed plans that would pay more than they intended for the results they were seeking to achieve. In many ways, these kind of ‘overpayments' are much worse to deal with. For starters, you are contractually obligated to pay them, so mere knowledge of the problem doesn't provide you any means of recovery. Furthermore, you typically don't find out about the problem until you are faced with signing a very big commission check. OUCH.

So this year, spend some time modeling the plans before rolling them out to the team. Look at your cost exposures for overlay positions, windfalls, quotas set too low etc. Correct the problem before it happens.

Liz Cobb
CEO
Makana Solutions