How Callidus can manage your commissions

Finding ways to reduce costs and increase profits is a continuous expedition for any IT executive. You can imagine a CIO with machete in hand trying to blaze a trail through the jungle of marketing hype, feature sets and licensing schemes in search of a simple solution that contributes a few percent of additional profit to the bottom line.

Often, those critical cost savings or increased productivity come from smaller, best-of-breed products that perform a discrete task exceedingly well in support of other applications and business goals.

Callidus Software is one of those niche products that can deliver beneficial qualitative and quantitative results to an enterprise. The six-year-old company provides sales incentive compensation management (also called enterprise incentive management) software for larger enterprises.

Callidus and others in this growing space address the unwieldy problem of managing complex incentive compensation and commission programs. Most companies have sales commissions and incentive pay as a part of their business, but use homegrown applications or spreadsheets to handle the complicated transactions necessary to compensate and incentivize sales teams.

Typically, those homegrown systems have an error rate of up to 10 percent, which can adversely impact the bottom line as well as sales employee moral (unless the errors are in their favor). It's a large-scale problem better handled by Internet-centric, rule-based systems that can adapt easily to business changes and interface with a variety of applications involved in the compensation process.

The volume of transactions, complexity of relationships, and multitude of systems that have to interact -including ERP, financial, human resource and sales--all contribute to the overall difficulty of the problem, according to Joe Galvin, vice president and research director of Gartner's CRM practice.

Sprint, for example, doles out about $800 million annually in sales commissions, and the insurer Allstate disperses about $1 billion in commissions yearly. Financial services provider CUNA Mutual has a network of compensation plans covering 7,000 employees across multiple divisions.

"Before moving to Callidus, the sales team had an extremely low view of the accounting and accuracy of commission payments," said Mike Cully, vice president of finance and controller at Veritas Software. "This was a case where installing Callidus solved the problems, primarily because accuracy improved. It also provided a big boost in visibility for the sales forces, allowing them to see where they stood for the particular quarter in the year."

Cully estimated the hard dollar payback for the investment in Callidus' software was about six months, but there was also a payback in that the sales force could trust the system and focus on selling rather than on reconciling credit for commissions and incentive pay .

Galvin considers Callidus the category leader in delivering packaged incentive compensation management solutions. Callidus' suite of products range from TrueComp and TruePerformance for administering, reporting, analyzing, and modeling variable compensation schemes to TrueCredit, which automates claims and dispute resolution.

"Callidus has built the largest established client base and continues to show market momentum in terms of the variety of verticals and size of its deals," Galvin said. "There are a number of alternatives, but Callidus has the depth and breadth, domain expertise, and the ability to execute." Centive is also considered a top incentive compensation management player, followed by Synygy and Motiva, Galvin said. Competition is strong in this category, which makes a good buyer's market. This week, Motiva launched an exchange program targeting Callidus, Centive, and Synygy customers, offering financial incentives to trade-in for the just-released Motiva 9. In addition, enterprise vendors such as Oracle, PeopleSoft, SAP and Siebel offer incentive compensation management features as part of their broader offerings. "Incentive management products from large vendors are designed to be sold into their client bases, but the market shows people trying to solve compensation problems are selecting best of breed," Galvin said.

The case for incentive compensation management is straightforward. Increased accuracy in compensation and incentive plans leads to more accountability and clarity among a sales force. A flexible platform with predictive modeling capabilities allows an enterprise to tweak plans more easily, maximize for profit, and eliminate inefficiencies and inequities from the system. Most importantly, sales and accounting staff don't have to waste cycles dealing with error-prone systems that can cause the most even-tempered = person to have a meltdown.

Does you company use incentive compensation management software? What are you impression of the current crop of players and products? Use TalkBack to let your fellow ZDNet readers know what you think. Or write to me at dan.farber@cnet.com. If you're looking for my commentaries on other IT topics, check the archives.