The Terrible Tale Of Many Databases: Shadow Accounting

‘What keeps reps motivated?’ is a question that has a lot of nuances. On the face of it, it seems like a very simple question. In fact, most sales leaders would tell you that ‘Incentives’ are the biggest motivating factor for sales reps. It is easy to understand why- the more revenue your reps bring in, the more money they will earn as incentives. 

However, what most sales leaders fail to mention is that it is not just incentives but good Incentive Compensation Management that truly drives reps to optimal performance. A missed decimal point in your data could be a minor inconvenience at best and a colossal nightmare at worst. 

An unreliable ICM can foster mistrust among your reps, slow down your revenue engine and result in a team of demotivated reps. It can also lead to what is widely known as Shadow Accounting. To put it simply, reps start keeping track of their commissions and earnings on their own by maintaining their personal records, independently from the company’s official records. This allows them to verify if their incentives are calculated properly and dispute their claim in the case of any discrepancies. 

The main reasons why reps may resort to Shadow Accounting are-

1. Lack of Pay Transparency and Visibility- Reps need to feel included in the Incentive Compensation plan. They should not be passive onlookers but active stakeholders in the ICM process. When reps don’t feel that they own the Incentive Compensation plan, they tend to create their separate databases.

2.  Inaccurate Payouts- 80 % of spreadsheets have errors! The woes of legacy systems are one of the main reasons reps maintaining Shadow Accounts has almost become a norm in most organizations. More often than not, reps are underpaid or overpaid due to the errors reflected  in these legacy systems. You really can’t blame the reps for trusting their own calculations more. 

3. Mistrust between reps and the leadership- If reps don’t feel that the sales leadership is looking for their best interest, they may feel the need to keep a separate account of their work. As much as legacy systems are to blame, leaders who continue to use them also share in that blame!

The Problems-

It is quite unfortunate that Shadow Accounting is widespread in organizations, to the extent that it is glossed over by sales leadership by terming it as a ‘necessary evil’. The full extent and implications of Shadow Accounting can be understood by looking at some of the problems that it leads to-

1. Shadow Accounting can drastically increase sales inefficiency. Forbes reports that sales reps spend 64% of their time on non-selling activities like shadow accounting. Think of it like this- You have 50 sales reps. If a rep is spending even an hour every week maintaining shadow accounts, that amounts to 50 hours a week. Which means, you are essentially losing the equivalent of one sales rep’s time a year!

2. Reps may feel demotivated to hit targets and exceed their quotas if they feel that they won’t be properly compensated for it. One of the main reasons why reps feel the need to look for alternate employment is because they do not think they are being fairly compensated where they are. 

3. Shadow Accounting adds fuel to the vicious cycle of mistrust between the reps and the sales leadership. By prioritizing transparency and aligning with the principles of sales value, organizations can break this cycle, fostering a collaborative environment that extends beyond compensation concerns. Reps may not feel the need to listen to their managers’ inputs if they feel that their best interests are not being considered. 

The Antidote

Wondering what your antidote for Shadow Accounting is? A reliable and automated ICM Software! 

1. Make your ICM more accurate by integrating it with your CRM- If you are still relying on legacy systems such as spreadsheets for calculating your IC, chances are that there are a whole bunch of unidentified errors that will later pop up. Moreover, copying and pasting data from your CRM manually is a mammoth task. Using an ICM Software that seamlessly integrates with your CRM will give you the assurance that the data you are working with is reliable. What this means is that further processes like payouts will be accurate as well. 

2. Make your ICM more transparent by providing reps with real-time reports- The most effective way to deal with Shadow Accounting is by providing reps real-time reports of their performance and compensation. If reps feel that they have the data that they need, they will not feel the compulsion to resort to maintaining their own accounts. 

       A few things that can be incorporated into these real-time reports are- 

• A breakdown of the deals that a rep has closed along with the value of the deal. This data should flow seamlessly from your CRM.
• A detailed overview of their IC plan and how they are paid. 
• An overview of their targets, quotas, and OTE earnings provides valuable insight into the compensation structure.

3. Make your reps feel like they own the ICM by using interactive tools like a Dashboard or a Query Management System- Spreadsheets do not work because legacy systems are not responsive. An automated ICM on the other hand, provides the rep with the platform to interact with the organization. A user friendly dashboard where the rep can access relevant data without hassle ensures employee comfort. An uncomplicated Query Management System on the other hand makes the rep feel that their issues are being heard by the management.

Break the vicious cycle of mistrust with Kennect’s automated ICM Software! To know more, book a demo with us today.

‍