EIM/ECM 101: Cutting through the Confusion

If you’re like many people who’ve been put in charge of looking for your company’s next compensation solution, you may be somewhat bewildered about the different applications available. There has long been a confusion surrounding enterprise incentive management (EIM) and enterprise compensation management (ECM) solutions. The reason is that, technically, both types of solutions enable some of the same results—one of which is to provide a payment to an employee for services rendered. However, the reasons behind these payments can differ substantially (e.g., commissions versus bonuses versus spiffs, etc.).

Before You Start

Before you know which kind of solution you should be looking for, you must define what you’re trying to accomplish. What are your long-term goals for implementing such a system? Are you looking to minimize the amount of manual work done with spreadsheets? Are you trying to reduce operational costs and increase the accuracy of entries through automation? Is compliance an issue? Is the current economic situation forcing you to change your rewards strategy?

Putting Together a “Rewards Strategy”: Your Compensation Action Plan

Putting together a strategic incentive compensation plan should be your first move. Defining your goals and determining your needs are just a few of the necessary steps you’ll need to take. Developing a manageable compensation plan—one that helps motivate employees and boost productivity— is a very complex challenge, however; and there are many factors to consider. Companies often have poorly defined and confusing compensation structures, which work against creating the excitement needed from sales staff to make it a success.

There are generally four components to developing a successful sales compensation plan: salary, commission, bonus, and sales incentives. A well-constructed sales compensation plan should include all four components. It’s important to build a plan that is straightforward and easily administered—not one that is complicated and confusing. Luckily, there are many different types of systems available today that can help you do just that.

What Type of System Do I Need?

Even the best-designed incentive compensation plans can fall apart if they’re not managed and administered properly. For your plan to be a success, you will need to determine what type of system will best suit your needs. To help ensure you’re looking for the right type of compensation solution for your business, I have broken the possibilities down into two distinct areas. This will help you understand the different types of solutions available for creating and managing your organization’s compensation plan(s).

What is Enterprise Incentive Management (EIM)?

EIM is geared toward paying sales staff. It is often referred to as sales compensation management (SCM), sales performance management (SPM), or possibly even incentive compensation management (ICM). It’s no wonder people are confused!

EIM applications are designed to allow organizations to set up commissions for their sales people that are based on the performance of the company. An EIM application allows businesses to design and track, as well as pay, sales commission plans. Complicated commission structures can be often overwhelming for a sales manager; however, implementing an automated EIM solution considerably reduces the number of manual calculations managers often find themselves doing. In many of today’s sales departments, EIM applications are replacing the traditional compensation-tracking programs (which were comprised of complicated spreadsheets and financial data reports).

Today’s EIM solutions make the commission payment process entirely automated, allowing businesses to

• align compensation with company goals
• use incentive management to promote a pay-for-performance culture (performance-driven)
• reduce turnover
• achieve better cost control
• increase sales force production
• influence performance
• minimize the risk of mathematical errors

EIM helps managers create exciting incentive plans that can calculate and track commissions, as well as other types of rewards. Employees can track their performance by accessing these plans through employee portals—right from their own desktop or smartphone.

Incentive management includes (but is not necessarily limited to)

• salary
• commission management (including split commission)
• kickers and spiffs
• territory alignment
• quota management

In addition to enterprise incentive management functionalities, these types of solutions often include tools for

• recruiting
• administering benefits
• paying multi-tiered commission plans

As with any new system implementation, however, you can probably expect to get some negative feedback from your sales force—at least in the beginning. Change is difficult at best, and until your employees see the measurable results of implementing such a system, they probably won’t be too happy with it at first.

One thing is certain: an automated EIM solution will make your executives happy! Built-in analytics provide tracking against budget reports, and a variety of customized reports can be generated with the press of a button. EIM systems also offer a solid return on investment (ROI), usually within six months, by reducing payment errors and increasing the productivity of the sales, finance, and IT departments.

Vendors in the EIM space include

• Authoria - Authoria Incentive is an EIM solution that can help businesses significantly enhance compensation planning and administration. Authoria’s automated solution provides a quick ROI by increasing accuracy, improving effectiveness, and reducing cost. {read more}

• Callidus Software - TrueComp addresses the challenges faced by compensation administrators, including retroactive changes to compensation plans; territory assignments or organizational reporting structures; modeling and forecasting future compensation expenses; quota management for the entire organization; and researching and resolving disputed sales credit situations. {read more}

• Varicent - Varicent SPM incorporates features and processes of financial planning and budgeting software, while adding specifics to address sales operations and pay-for-performance plans. This approach provides users with insight into overpayments and errors in commissions, and allows them to perform “what-if” analyses on sales trends. {read more}

• NetCommissions - NetCommissions can help companies improve sales force productivity by providing online sales commission management solutions. NetCommissions delivers sales commission management solutions that help produce timely and accurate payments, and provide customers with an integrated, comprehensive, and motivating user experience. {read more}

• Synygy - Synygy’s Sales Compensation Management software consists of a set of integrated modules created by Synygy that do not require patching together with third-party applications. Each type of plan is defined by or associated with a set of data objects, participant objects, compensation objects, and report objects. {read more}

What is Enterprise Compensation Management (ECM)?

ECM is geared toward paying salaries and bonuses, which are considered part of the human resources (HR) function. A compensation plan describes the rules and structure of conditions of a company’s employees’ compensation and how it is treated in the compensation administration process. Compensation rules often include eligibility, guidelines, and proration. ECM provides the tools to manage, measure, and reward not only individual contributions, but team contributions as well.
Compensation management and related employee performance management (EPM) are most often the key components in a broader suite of talent management applications.

Today’s ECM solutions make the compensation payment process entirely automated by allowing businesses to

• create centralized and decentralized budgets
• plan and administer compensation adjustments at the manager level
• plan and administer compensation adjustments within a predefined budget
• define pay grades/scales and salary structures to identify the internal value of jobs and positions within the organization
• administer long-term incentives

Compensation, however, is driven by the needs of the business and not by those of HR. These types of applications are used by HR professionals to measure workforce performance, and improve their ability to assess and deploy talent. Compensation management software provides the modeling that allows for fair compensation of employee competencies and performance, and is used as a strategic tool for retaining talent.

Compensation management includes (but is not necessarily limited to)

• salary
• bonus (regular and one-time payments)
• grants

In addition to enterprise compensation management tools, ECM often includes tools for generating

• service awards
• leads
• health and wellness programs
• online education/training programs
• safety programs
• recognition and customer loyalty programs
• long-term incentive (LTI) programs

Like with managing incentives, HR personnel often find themselves working with complicated spreadsheets (working in constant reactive mode, rather than in a proactive mode). Compensation management solutions alleviate this labour-ridden task by taking the guess work out of the equation.

Vendors in the ECM space include

• Laserbeam - LaserComp helps simplify compensation management for the enterprise. It enables compensation analysts to create plans, model impact, manage approval, and provide consistent results across the organization. LaserComp extends the capabilities of payroll and other human resource management systems (HRMS) to manage compensation administration. {read more}

• CornerstoneOnDemand - Cornerstone provides a suite of learning and talent management software and services to support HR and company initiatives, such as talent readiness planning, leadership development, career planning, employee onboarding, pay-for-performance programs, enterprise compliance and certification management, channel partner training, customer training, and employee engagement programs. {read more}

• Halogen - Halogen eCompensation is a web-based application that can make managing your base salary, pay-for-performance strategies, incentive compensation, and stock option programs easier—regardless of the size of your organization. Halogen eCompensation helps organizations improve their accountability, foster a performance-oriented culture, and complete their compensation plans on time. {read more}

• SuccessFactors - SuccessFactors provides performance and talent management solutions that help organizations realize their potential through their talent. It provides an affordable, integrated solution for companies of every shape and size. Its capabilities include recruiting, performance, compensation and succession planning, and more. {read more}

Recap: So What Are the Major Differences between EIM and ECM?

Incentive management shares certain functional elements with compensation management. However, incentive management is usually integrated with a CRM application to budget and execute compensation strategies affecting sales personnel, distribution and channel partners, and call center employees. It tracks and rewards the attainment of revenue goals and customer satisfaction objectives.

Compensation management software, on the other hand, is generally used by HR and compensation managers to model and implement compensation plans for salaried or hourly employees.

A Final Word

The market for compensation applications is experiencing dynamic growth, with new vendors and more robust solutions vying to accommodate broadening demand. Vendors in this space tend to defy clear categorization, because the scope of integrated solutions is continually evolving. Often integrating the management of compensation, incentives, recruiting, and enterprise performance in one solution (or suite) is the answer—but not for everyone! There may be times where a point solution is clearly a better choice.  But now that you know what to look for, with a little perseverance—or help from experienced software selection experts—you’ll find the solution your organization needs.

If you’d like a running start on your search for an incentive or compensation management solution, why not try out TEC’s ICM Evaluation Center?

Another EIM/ECM Mission for Clarification

There’s another potential mission out there to get EIM/ECM straight. This one, however, will clear up the confusion between enterprise information management (EIM) and enterprise content management (ECM). But I’ll leave that for another day—and another TEC research analyst. Kurt?