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Managing Incentives and Rewards for Financial Compliance
Disparity of processes and internal systems are financial and operational risk points.
May 23, 2005
3 Min Read
Organizations continue to expand their focus on leveraging rewards and incentives to ensure the alignment of revenue targets, financial plans and operational objectives within sales and other operational areas as part of their performance management efforts. Unfortunately, the process and systems used to support this effort have not been streamlined. Operational planning and execution of incentive programs paid out by finance have yet to be automated efficiently. Ventana Research believes organizations that want to prepare for financial and operational review, let alone the likelihood of auditing from Sarbanes Oxley legislation, should document and automate the process with applications and information systems that mitigate operational risk.
Achieving cultural adoption of processes to improve performance is the largest alignment challenge facing organizations. This challenge has typically been addressed through the use of incentive and rewards programs used to get people and organizations to change their behavior. These programs can have significant impact, but can also raise ethics and compliance concerns in areas like revenue recognition in sales, supplier contract renewal in manufacturing, and employee-to-customer incentives for closing contracts in sales and distributor management.
While these programs and allocated budgets for incentives are not new to organizations, the requirements for managing how and when they are paid out or supplied is now becoming more important for finance. This challenge has heightened in light of the fact that incentive systems and linkage to revenue recognition continue to be managed via spreadsheets or siloed applications, practices that increase the risk of fraudulent activity and open the door to inaccuracies. Organizations, and especially operational management, need to meet the level of scrutiny imposed by finance and develop a well-documented process that can be automated and audited through information systems. In addition, the training and approval of every participating employee, and compliance to the rewards and incentive process, should be automated and accounted for as part of the learning and training programs.
To achieve this level of automation, organizations should review how enterprise incentive management systems are deployed – either on-premise or provided in on-demand fashion -- to help manage incentives and rewards for internal and regulatory compliance. These applications should be centrally managed for auditing and access by finance and operations. Achieving performance improvement across sales processes is vitally important. Another critical component is how revenue recognition and incentives, sometimes called “spiffs,” should be managed. Ventana Research recommends that organizations take a consistent approach to managing this process as part of their sales or operational performance initiatives. This should be examined within the context of enterprise-wide workforce performance management initiatives.
Streamlining your performance processes and automating the visibility and management of rewards and incentive programs is needed to mitigate the financial and operational risks to which your organization is currently exposed. Organizations that want to prepare themselves for the inevitable and required automation of their performance processes for managing incentives and rewards should assess their environment today. Ventana Research sees the best practice in managing this process as one that synchronizes finance and operation’s requirements while providing the flexibility to achieve the goal of alignment in performance management.
Mark Smith is CEO and Senior Vice President of Research at Ventana Research.
Ventana Research is the preeminent research and advisory services firm helping our clients maximize stakeholder value with Performance Management throughout their organizations. Putting research in a business and IT context we provide insight and education on the best practices, methodologies and technologies that enable our clients to leverage assets to understand, optimize, and align strategies and processes to meet their goals and objectives.
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