Companies that work with commission programs to incentivize their teams often encounter a very common, albeit not readily apparent, issue known as shadow accounting or parallel accounting.
In the blog below, we’ll help you identify the causes contributing to this situation within your sales team.
What is shadow accounting?
This notorious shadow accounting tends to occur when sales transactions are tracked by sellers but not reflected in official records.
For example, a department store manager in high season, such as Christmas, aims to achieve 25 sales per week per salesperson with a team of 35 salespeople.
With numerous data to record, commission calculation errors can occur for their sales team, which may lead to disputes, low sales performance, or even resignation from agents who were paid less.
That’s when shadow accounting comes into play. Sales representatives want and need to be paid their commissions without errors, so they start creating separate accounts to keep track of what they are owed.
This additional task for salespeople only represents a loss of time that could be better invested in strategies, results analysis, customer service, or any other productive activity to improve numbers.
5 aspects of your commission program that are generating shadow accounting
Inaccurate sales data:
If the sales data used is incorrect or incomplete, it can lead to commission calculation errors. This can happen if sales are not properly recorded or if there are errors in the data entry process.
Incorrect commission rates:
This can happen if the commission structure changes and the new rates are not effectively communicated to employees, which is quite common.
Calculation errors
If the commission calculation process is not set up to include all eligible sales or if there are omissions in the commission formula, it can lead to calculation errors.
System failures
If there are failures in the software used, it can lead to calculation errors. This can occur if the system is not properly maintained or if there are bugs or glitches affecting sales record keeping.
Distrust
Distrust is also a factor in commission programs, as salespeople may not trust that they will be paid correctly due to past experiences or simply noticing deficiencies in their management.
The sales team spends an average of 64% of their working hours on non-sales activities, which could include manual calculation and validation of their own commissions.

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5 ways to eliminate errors in a commission and incentive plan
Regular audits
These can help identify any errors or inconsistencies in commission calculation. The audit should include a review of sales data, commission rates, and commission calculation formulas to ensure accuracy and integrity.
Clearly define rules
Providing clear guidelines and instructions on how the incentive compensation plan works can help reduce errors. Employees should have a clear understanding of how commissions are calculated and what factors are considered.
Use reliable data sources
Automated systems that collect and process sales data can help ensure accuracy and integrity.
Provide training and support for any questions
Employees should have access to resources and support if they have questions or need help with the commission calculation process.
Leverage ICM tools
An Incentive Compensation Management (ICM) tool is cutting-edge technology that can transform sales offices by enabling commercial leaders to implement each of the recommendations made in this blog.
Additionally, commission management software allows companies to move away from spreadsheets, which have been prone to errors for years, thereby avoiding the typical mistakes that cause your sales agents to lack confidence in your work and also achieve multiple benefits such as time savings, improved visibility for the entire team, and performance rankings, among others.
“Did you know that 88% of all spreadsheets contain errors, and the larger the spreadsheet, the more likely it is to contain an error?”
Conclusion
Shadow accounting is a process that is only slowing down your company’s growth. Avoiding it is crucial if we want to have a high-performing sales team that focuses on achieving goals rather than worrying about whether they will be paid correctly.

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