Incentive compensation management (ICM) is software that works out each salesperson's commission from their plan, their quota and the deals they closed, and shows them how it was calculated. Commission is the extra pay a salesperson earns for what they sell. A quota is the amount they are expected to sell in a period. The plan is the set of rules that turns sales into pay. ICM is also called sales compensation software. It is the main part of a wider category, sales performance management, which also covers quotas and sales territories.
Commission sounds like simple arithmetic. In a large sales team, it is not. Many plans pay a higher rate once the quota is reached; this higher rate is called an accelerator. A deal may be shared between two salespeople, or between a salesperson and a manager. Some products may pay more than others. A customer may cancel and get a refund, and then the commission must be taken back, which is called a clawback. Quotas also change in the middle of the year. A company with 400 salespeople and ten types of plan may have thousands of rules. Before this software, finance teams calculated commission in large spreadsheets, and mistakes were common. A salesperson who thinks they were underpaid argues about it, and some leave.
The software reads the closed deals from the CRM. It also reads each salesperson's plan and quota. Quotas are often planned in financial planning and analysis (FP&A) software, or in sales territory planning tools. Every month or quarter, the software applies each salesperson's plan to their deals. Each salesperson sees a statement that lists the deals counted, the rate applied and the total. They can raise a dispute on any line. After approval, the totals go to payroll, which pays them with the salary. Some products also hold benchmark data from thousands of plans, so a company can compare its rates with those of similar companies.
Take, for example, a sales executive at a Vadodara company that makes industrial air compressors. Her quota for July to September is ₹2 crore. Her plan pays 2% on sales up to the quota, and 3% on sales above it. She closes deals worth ₹2.4 crore. She shared one of them, worth ₹40 lakh, with a colleague from another region, so she gets half the credit for it. Her credited sales are therefore ₹2.2 crore. The software calculates 2% of ₹2 crore, which is ₹4 lakh, and 3% of the remaining ₹20 lakh, which is ₹60,000. Her total commission is ₹4.6 lakh. Her statement shows every line, including the shared deal. The total goes to payroll with her October salary.
Commission is also a cost that the finance team must plan for. So companies often estimate the commission on the forecast from revenue intelligence before the deals close.