Commission Run Auditing

What is commission run auditing? Why do it? Who should do it? How do you do it?

What is Commission Run Auditing?

Commission run auditing is a process of many steps to validate that your sales force is paid properly and accurately based on the rules of your compensation plan.

Stated another way, acceptance of responsibility for accurate payments = commission run auditing!

Why Audit Commission Runs?

Your commission runs should be audited to ensure the earnings calculations are correct. Don’t assume your people are being paid correctly. Rather, assume they’re not because errors are common.

Representatives who are paid incorrectly can conclude that

• Your company is inept
• Your company is cheating them
• You are doing other things wrong as well

Your representatives will “go away” if you don’t pay them as you promised when you promised.

Some companies change their compensation plans every few months. Others change them every few years. You might find it interesting to learn that companies on average change their compensation plans once yearly.

While compensation plan changes increase the likelihood that new errors will be introduced, some discrepancies don’t show up right away. This means the need to audit your commission run every month (or every week, if yours is a weekly plan) is imperative.

Commission plan auditing is VERY IMPORTANT.

Reasons for Errors

Understanding the reasons for errors is the first step in reducing them.

Misunderstandings are the primary cause of errors. Misunderstandings may exist between you and your software provider, between individuals at your company, and/or between employees of your software company.

Software programming bugs (title promotion errors, demotion errors, and calculations) are a distant second.

That is why it is so important that your internal documentation of your compensation plan includes examples of title promotions and upline payouts on a single transaction.

Misunderstandings

To help to eliminate misunderstandings, ensure all communication on your compensation plan is in writing. Follow up every verbal discussion with a written list of decisions made.

Have more than one person at your company review your compensation plan documentation for clarity and accuracy.

Request that your software company or your internal software developers, as applicable, prepare a “commission sign-off document” in their own words to explain their understanding of your compensation plan. Insist that the signoff document includes several examples of each type of commission and bonus that can be earned. Every exception has earned its own example.

Who Should Audit Your Commission Runs?

Should it be your software provider?

• Yes, when they deliver the initial compensation plan to you
• Yes, when they deliver changes in the plan to you
• Yes, when you ask them to perform this function as a response to an outstanding problem or concern
• No, at any other times

Should it be your company?

• Yes, every month (or week if yours is a weekly plan)!

As you can see, commission run auditing should be performed by both of you.

What are the skills required?

The following items are essential in order to do a thorough job at commission plan auditing:

• Full understanding of your compensation plan
• Knowledge of the tools available to audit the plan
• A testing mentality to exercise it fully

Commission run auditing is not a task to be assigned to the nearest warm body.

How Do You Audit Commission Runs?

We recommend that commission plan auditors develop a test plan that contains a checklist of items to test. Your checklist may include:

• promotions to each title level
• demotions to lower title levels
• “missed” promotions by a dollar in volume or a leg count of one, for example
• payment of each type of commission
• rollup
• compression
• exemptions

Each time, your live commission run should be fully audited.

In a TEST environment under your control, test the original commission run and any subsequent commission plan changes.

Conclusion

Like President Reagan said, “Trust but verify”, commission run auditing is a necessity.

Sylvina Consulting teaches companies how to audit commission runs. For further information, contact us at 503.244.8787 or jay@sylvina.com.