NOP-driven Commission & Incentive Comp: VDDW Corporate Performance Management Initiatives for Results

RESULTS: Initiatives > NOP-driven Commission & Incentive Comp



	Initiatives: Overview Pricing Supply Chain Routing Planning & Budgeting Return On Advertising NOP–driven Negotiating NOP–driven Commission & Incentives Sku Rationalization Customer Profitability Market Segmentation Partner and Product Benchmarking Improved Category Management Staffing efficiencies Process Costing

Many companies have a special group (or groups) charged with driving volume whose constituents are handsomely compensated on the results they deliver. For a manufacturer, the salesman may be king. For the retailer, it’s the buyer. For other organizations, it may be the marketing group. Whoever is tasked and recognized as a front-line contributor to the company’s success (read “sizably compensated on their individual contribution to the company’s performance”) should be measured and paid based on the actual bottom-line impact they make. If an individual’s contributions are not accurately measured at a Net Operating level, it is entirely possible that the volume they drive may lose the company money, rather than earn it.
Many companies use an incentive or commission formula based on Gross Margin or Volume targets, and this is usually because they haven’t determined a trustworthy way of apportioning overhead to individual performers. There are many ways to make a deal that is high-volume, with respectable Gross Margin, but still a bottom-line money loser for the company. Concessions on special handling, payment terms, service requirements, and rebates & other incentive programs, to name a few, can all erode the value of a deal and drive it into the red, even though purely from the perspective of volume or gross margin, the deal seems attractive. (See the section on NOP-driven Negotiating for a specific example.)
The antidote is clear visibility into NOP, by performer, with an incentive structure aligned with this most important of measures. And here, the VDDW delivers. It exposes NOP by all operational dimensions, including the individual sales rep or buyer, if so modeled, and provides the information foundation for a NOP-driven incentive system. Additionally, it provides complete traceback to the GL for understanding the different financial categories that contribute to the bottom-line, meaning that one-off, spot-price deals can be broken down to determine if they at least cover their incremental cost burden, if not their fully allocated fixed costs, to ensure an incremental profit is earned.