In the first post in this series, we looked at how the creation of integrated delivery networks is guiding medtech companies to restructure their sales compensation plans. ZS’s annual medtech survey, released Sept. 1, revealed the impact of another upstream change to the go-to-market model: how pressure to reduce SG&A spending is beginning to affect medtech companies’ sales compensation plans.
Medtech customers are increasingly looking beyond a product’s features and benefits to focus on value. That means that companies can no longer rely on new technology, or on salespeople pushing for their products to be a physician preference. Rather, companies need to prove that their products will actually provide value, either to the patient, hospital or both.
As a result, the industry’s revenue growth isn’t what it once was. In fact, since 2015, our survey shows that medtech companies’ expected revenue growth has dropped from 8% to 5%. The lower growth rate is causing contract sales organizations to put pressure on one of medtech’s biggest SG&A expenses: the sales force.
One year doesn’t a trend make, but this year’s survey showed that companies have taken steps to lower reps’ ability to earn extreme payouts. The amount that companies are willing to pay the top 10% of individual performers (as a multiple of target incentive) has dropped during the last two years. In 2015, companies targeted top performers across all roles to earn 2.3 times their target incentive amount. This year, not a single role targeted more than twice the target incentive for top performers.
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Moreover, there was a sizable increase in the percentage of companies incorporating decelerators into their plans. While outright caps continue to be unpopular, companies are using this alternative method to limit what they may deem to be excessive incentive payouts. The increased use of this mechanism is consistent with the lower-targeted upside opportunity.
On the other end of the payout spectrum, we’re starting to see companies set up their payout calculations knowing that some reps will end up earning $0 in incentives due to poor performance. In the 10 years we've conducted this survey, most companies have expected that nearly all of their sales reps would receive at least some payout. But this year, more companies are willing to have some of their lowest performers earn nothing: On average, companies expected 3% of their account managers to earn $0 in incentive pay, and 4% of their specialist reps to also earn zilch.
It may be too early to classify such shifts in sales incentive plans as trends, but there’s evidence that pressure on medtech companies’ SG&A spending is beginning to be felt downstream. Lower upside opportunity and more people earning zero incentive payouts are outcomes consistent with this pressure. As we continue to monitor this and other factors affecting medtech’s sales incentive plans, it will be interesting to see how things might change with next year’s survey.