Introduction to Oracle Incentive Compensation

This chapter covers the following topics:

• Overview
• Responsibilities Based on Business Flows
• Navigating in Oracle Incentive Compensation

Overview

Sales jobs have a significant, measurable impact on the revenue of your business. Keeping your employees motivated and happy is very important for the long-term health of your enterprise. Oracle Incentive Compensation plays a part in determining cash and other tangible rewards. You can use Oracle Incentive Compensation to pay employees, partners, customers, and any nonemployee role.

A well-designed compensation plan directs employees to follow the goals your company has set, while rewarding good performers and eliminating poor performers. It effectively links performance to earnings. The goal is to create a positive sales culture while controlling costs. For some companies, a fully featured application like Oracle Incentive Compensation is better at managing incentive compensation than a system of spreadsheets and manual accounting. If salespeople are confident that their compensation plans are fair and accurate, then they can spend less time keeping track of transactions and more time generating revenue.

Sales jobs vary tremendously within a company and an industry. For example, some salespeople act as primary customer contacts and sell directly to them, and other types of salespeople have an indirect relationship, or give support before or after the sale. Good compensation plans compensate all of these employees fairly while costing the company as little as possible.

Business Flow

Determine your Business Strategy

A good business strategy determines who your customers are and what they are likely to buy. You need to know what your customers want and what is important to them. You must decide how you are going to contact the customers, and what sets you apart from the competition. You may want to sell directly to customers or indirectly through partners. Only after your strategy is in place should you start designing compensation plans. With the plans you then can communicate your objectives to your entire organization and set performance measures for the salespeople. Compensation plans can then support your overall business strategy.

Align Compensation with Strategy

A compensation plan can help to motivate your sales force to sell, but other considerations are important, too. You want to be sure that the compensation plan gives enough feedback and a long enough time period for accurate assessment of performance. You want the measures of success to be appropriate. You want the sales goals to be fair and accurate.

Allocate Quotas and Territories

With Oracle Incentive Compensation you can align quota targets with corporate revenue, volume, and profit targets. You can organize your sales force by:

• Geography

• Product

• Market

• Customer

• Individual Account Team

• Other

Create and Administer Compensation Plans

Compensation plans are used to reward employees who affect sales results. A good variable compensation plan contains the two or three most important company objectives. Your company should regularly review and, as necessary, change compensation plans to address changes in the marketplace.

In Oracle Incentive Compensation, you can identify and organize all of the products and services that you sell into a hierarchical structure. This product hierarchy enables you to focus salespeople on exactly the products or services that you want them to sell.

You can use Oracle Incentive Compensation to determine when to compensate salespeople, for example, when the order is booked, an invoice is created, or payment is received. The application can also help you set the appropriate pay frequency to match the unique needs of the product or sales cycle.

A good compensation plan uses performance measures that are weighted appropriately to motivate and compensate your salespeople to meet your sales strategy. Performance measures work best when there are three or fewer, with no measure making up less than 15 percent of the total. Performance measures can be based on:

• Volume production: These can be dollars or sales units. You can use sales volume, revenues, market share, or profits as part of this type of measure.

• Sales effectiveness: These measures can be based on product mix sold, customer retention, price management, order size, and many other factors.

• Customer impact: These include customer satisfaction survey data and loyalty.

• Resource utilization: This includes productivity, use of partners, and more.

Compensation plans can have thresholds and maximums. A threshold is primarily used to avoid paying compensation on the same sale, year after year. It may also indicate management’s establishment of a minimum performance level before compensation is earned. Maximums, also known as caps, prevent overpayment of compensation.

You can use a commission matrix to resolve two conflicting objectives. This type of arrangement pays more commission if the salesperson succeeds is meeting both goals. For example, a salesperson may be asked to sell established products but also sell new ones, or retain customers while adding new ones. Salespeople who are successful in both objectives can earn a higher commission than if they achieve success in only one objective. Oracle Incentive Compensation provides multidimensional rate tables to accomplish this goal.

Use individual commission rates to even out commission payments when territories are different sizes. Create the individual commission rate by dividing the salesperson’s target incentive amount by the unique quota sales volume for the territory.

Use bonus formulas if you want to pay for relative performance against a percent of quota attainment rather than as a percent of actual sales production. Bonus formulas can be step or rate type. The step type is more common, and is useful for equalizing territories and providing varying payouts on quota performance. The rate type has no gaps or cap, and is more like a commission program. It requires two calculation steps. Bonus formulas can use hurdles, multipliers, and matrices.

Use Compensation Group Hierarchy for Sales Credit Rollup

A compensation group is a group of resources who share sales credit, directly or indirectly, when a sale is made. They are placed together in a hierarchy to accurately account for the payment of commission and sales credit. You can set up compensation groups to roll up sales credit from to managers and their managers. For example, when resources close a sale, they receive commission, their managers receive sales credit toward their quotas, and a director receives sales credit from the manager’s transactions. You can also include other team members, such as consultants, who receive indirect credit for performing consulting work that helped to close the business.

In many sales organizations, multiple resources can receive sales credit for the same commission transaction. If you choose to compensate multiple resources for the same commission transaction, you use a compensation group hierarchy to specify the relationships among the credit receivers. If a manager has two resources in his or her group and three more resources in a compensation group below him or her in the hierarchy, then transactions from the resources in the lower group will roll up to the manager and also to the two resources in the manager’s group.

A resource can have more than one sales role and belong to more than one compensation group. For example, at one organization, sales representatives 1 and 2 are in the same compensation group because their sales roll up to Sales Manager 1. Sales Manager 1 also belongs to a different compensation group that includes a separate group of salespeople who are working on another project. A resource can have the same role in multiple groups, or multiple roles in the same compensation group. In either case, sales commission can be calculated with no problem. However, if a resource is in multiple compensation groups with different roles, and another resource’s transactions are set to roll up to him along multiple paths, the application may not be able to process the commissions correctly.

Evaluate Performance

Executive management must periodically evaluate how the compensation plans are performing and make adjustments to them so that the plans support your business strategy. Managers should periodically evaluate their teams’ performance, and adjust the quotas or territories to maximize their salespeople’s effectiveness. Reports in Oracle Incentive Compensation enable managers to determine how well their salespeople are performing. Other Oracle applications, such as Oracle Balanced Scorecard and Oracle Financial Analyzer are also useful. These two applications can be ordered, but are not shipped with Oracle Incentive Compensation.

Responsibilities Based on Business Flows

Oracle Incentive Compensation is designed to work with your business practices. The application is delivered with different responsibilities set up to perform specific tasks in the incentive compensation process.

Note: Salespeople are called resources in Oracle Incentive Compensation.

The Incentive Compensation Administrator performs the implementation steps for setting up Oracle Incentive Compensation. This responsibility sets up integrations and dependencies with other applications. Using the Compensation Workbench, he or she:

• Sets application parameters

• Performs setups for Collection, Calculation, and Payment

• Performs setups for Credit Allocation

For detailed information regarding the Incentive Compensation Administrator, see the Oracle Incentive Compensation Implementation Guide.

The Plan Administrator:

• Creates classification rules and hierarchies

• Creates sales credit allocation rules and hierarchies

• Designs and builds compensation plans

• Maps Payable integration at the product level

The Compensation Manager:

• Assigns roles to resources

• Assigns compensation plans

• Views reports

• Collects, adjusts, and maintains transactions

• Allocates credit

• Calculates commission

• Adjusts commission

• Creates and adjusts payments

The Compensation Analyst performs many of the jobs of the Compensation Manager, but does not have permission to make assignments or create or pay payment batches. Incentive Compensation Users (and their managers) can view reports relating to their performance.

Some features of Oracle Incentive Compensation relate only to one or another of these responsibilities, so this guide is designed to direct attention to sections that impact users who need them. You can configure different responsibilities for your enterprise as needed.

The responsibilities in this release have changed. For information on mapping resources from the previous responsibilities to the new ones, see the Oracle Applications Upgrade Guide: Release 11i to Release 12

The key concepts discussed below are arranged by the following responsibilities. The second column in the table indicates the location of material of interest to people with that responsibility.

Responsibility	Relevant Chapters
Incentive Compensation Administrator	See the Oracle Incentive Compensation Implementation Guide
Plan Administrator	2 – Rules Library Management 3 – Building Compensation Plans Appendix A – Compensation Scenarios
Compensation Manager Compensation Analyst	4 – Assigning Compensation Plans, Pay Groups, and Payment Plans 5 – Collecting and Adjusting Transactions 6 - Calculating Compensation 7 - Payment with Payment Batches
Incentive Compensation User (Manager Self Service)	9 – Reports section only
Incentive Compensation User (Self Service)	9 – Reports section only

Incentive Compensation Administrator

The Incentive Compensation Administrator is responsible for implementing and administering Oracle Incentive Compensation. At the beginning of an implementation, the Incentive Compensation Administrator sets the application parameters, including:

• General Parameters: Includes the instance name, currency conversion type, and whether compensation plans will be customized

• General Ledger Parameters: These include setup of the functional currency, accounting calendar, and period type for the set of books.

• Interval Settings: These are the time intervals used for Oracle Incentive Compensation, including period (month), quarter, and year.

• Credit Types and Conversion Factors: These are used in the compensation plans and reports.

See the Oracle Incentive Compensation Implementation Guide for complete implementation information.

Plan Administrator

Plan Administrators create and maintain compensation plans, and the components of those plans. They also create and maintain the rules and rule hierarchies used in classification of transactions, account generation, and projected compensation.

Compensation plans are built in a modular way, which means you can reuse the plan elements in other compensation plans. The Plan Administrator can control the effective period of a plan or the plan elements by using start and end dates.

Oracle Incentive Compensation provides a 360-degree view of the compensation plans, from which the Plan Administrator can create plans, create and view the plan elements, and see to whom the plans are assigned and keep track of changes with a Notes history.

Compensation plans may be created using a top-down process. A compensation plan is made up of plan elements, which themselves are created from formulas. Formulas are sets of instructions that determine how the transaction information is used to calculate the amount of compensation paid to a resource. Formulas are made from rate tables and calculation expressions, which can be defined and reused within the application. Rate tables are tabular information that establishes compensation percentage rates or fixed amounts for different performance levels. Rate tables use rate dimensions, which define its rate tiers by amount, percent, expression or string value. Calculation expressions are either input or output expressions. Input expressions tell the application what information to use from the transactions and how to match that information to the rate table. Output expressions tell the application how much to pay resources.

Compensation plans are assigned to roles, and individual resources are assigned to a role. You can customize a plan for an individual resource. For example, you might want to pay a specific senior resource a special compensation rate based on unique qualifications.

Plan Administrators are responsible for creating and managing the hierarchies of rules in the Rules Library, which are used by Oracle Incentive Compensation to classify your company’s products and services, run transactions for compensation payment, and generate accounts in General Ledger. The Rules Library also includes any other hierarchies that you create, for example, customers.

If your enterprise decides to implement Credit Allocation, then the Plan Administrator is responsible for setting up rules and rulesets for that process.

Plan Copy and Modeling

You are responsible for the design, setup, and maintenance of Oracle Incentive Compensation plans, plan components, and rules. The modeling process allows you to:

• Create multiple scenarios.

• Modify plan, plan components, and rules as required.

• Run simulation of these plans against historical or forecasted transactional data.

• Compare the results of the simulations across scenarios.

In-Line Plan and Plan Component Copy

You can create a copy of a compensation plan or a plan component within the same operating unit. To create a copy, click the Duplicate icon in search results table, in the following pages:

• Search Compensation Plans

• Search Plan Elements

• Search Formulas

• Search Rate Tables

• Search Rate Dimensions

• Search Expressions

Scenarios

Scenarios are grouping of plans, or plan-role assignments, that allow you to compare the compensation costs of a set of plans in a scenario with that of another scenario. So, using scenario, you can compare results across different sets of data, and also across different operating units.

Copy Plan and Plan Components between Database Instances

At various times, you are faced with the task of modifying or updating existing compensation plans to conform to new sales objectives. Now, you can copy plans and plan components from the modeling environment to production environment leveraging XML technology. Using this functionality, you can copy the following plan components:

• plan elements

• formulas

• expressions

• rate tables

• rate dimensions

This focusses on the plans that you have created, and excludes plans that may have been customized for a particular resource.

Plan XML Document

When you have modeled a compensation plan, it may need to be approved by the compensation manager, and other resources within the Sales, HR, and Finance departments before it is activated. Oracle Incentive Compensation facilitates plan approval by displaying the compensation plan in an easy-to-read format. The Plan Report is published using XML Publisher and an RTF Template is provided, so that you can modify the report.

Compensation Manager and Compensation Analyst

Compensation Analysts manage compensation plans, administer the compensation process (Collection, Calculation, Payment), and review and handle disputes. Compensation Managers also perform these tasks, and in addition, manage the work of compensation analysts who report to them. Compensation Managers can make assignments and create or pay payment batches but Compensation Analysts cannot.

Compensation Analysts search and maintain resources, collect transactions, allocate sales credits, maintain transactions, calculate compensation, and manage the payment batches that set up payment of compensation. Compensation Analysts have a 360-degree view of resources. This gives them the ability to maintain resource information, customize compensation plans, and maintain payment plans and pay groups. Compensation Analysts cannot assign compensation plans to roles, but Compensation Managers can. Compensation Analysts can view historical compensation transactions and the records of how their compensation has been calculated. Compensation Analysts have access to a Notes feature, which they can add to or review. Notes help to keep track of changes for historical reference, and aid compliance with Sarbanes-Oxley requirements.

Compensation Analysts can validate the calculation process before running calculation.

Incentive Compensation User

Incentive Compensation Users include managers and salespeople, whose connection to Oracle Incentive Compensation comprises access to five reports, which enable them to view how their compensation plans have calculated their compensation:

• Year to Date Summary: An overview of achievements, commission and bonus earnings, and advances or draws.

• Commission Statement: Includes a balance summary that shows balances, earnings, recoverable and nonrecoverable amounts, payment due, and ending balance.

• Earnings Statement: Gives a complete look at all of a resource’s transactions for a selected period.

• Attainment Summary: Provides a snapshot of achievement and earnings, broken down by period to date and interval to date.

• Performance Detail: Provides quota attainment detail, including target, attainment, and attainment % to target. A graph is included.

Individual resources can see only their own reports, but Incentive Compensation Managers also have access to the reports of the resources that report to them. Managers use the reports to monitor the performance of their directs.

Incentive Compensation Users can personalize the search and display options for their reports, and can export them to a CSV file or publish them to Adobe PDF format using XML Publisher.

Navigating in Oracle Incentive Compensation

The user interface in Oracle Incentive Compensation Release 12 has been carefully designed to follow the business processes you need to manage incentive compensation. When you log in, you can select any responsibility to which you have been granted access. Each responsibility has a specific menu. You can click any link to access that feature. You can create favorite links to save time.

The Navigator