ZS Associates ran its Incentives Practice Research study again this year, and found that sales incentive plan trends have remained relatively consistent over last year. Continuing on a path in recent years, base and variable pay for reps and managers was comparable to the year previous. Also, most teams continue to rely heavily on quotas or management by objectives (MBOs).
Based on the 2015 Incentives Practice Research study, we see a lot of consistency in how pharma companies are paying their reps compared to previous years. But the industry continues to evolve, and we’ve seen that stability does not mean stagnation. So what’s new?
Here are the top three changes we saw in Incentive Compensation:
Flattening of Payout Ranges
Companies are gradually moving toward sales compensation plans that offer more predictability. While in the past there was increased variability between the highest and lowest performers, we are seeing that companies are starting to decrease the range of payouts offered, especially on the lower end. We believe companies are using the prospect of guaranteed payout to improve rep performance by improving morale. Some highlights:
- About three-quarters of the companies use payout caps and/or floors; payout caps are usually limited to about 250% of target.
- Less than 5% of sales reps will earn $0 in a bonus period, continuing a downward shift first seen in 2014 (previously it was 10%).
- High-end payouts have decreased, potentially due to increased data uncertainty or compliance concerns. The one area that has not seen this is infusion products, which may be due to high competition.
New Roles are Requiring Different IC Approaches
Reflecting a more complex sales environment, inside sales teams and key account managers (KAMs) are becoming more prevalent in organizations. These emerging roles are increasingly important in order to provide significant impact to high-value targets and expand the product’s reach in ways that traditional retail reps cannot. We believe that dependence on these specialized roles will continue to increase as the market becomes more competitive.
- Even a quick look at our 2015 numbers illustrates the importance of KAMs given their relatively high compensation, which is among the highest across all teams. Inside sales and KAM team utilization of MBO-based compensation plans is among the highest—they are typically weighted at least 50% of total incentive target pay for both teams and are used by over 80% of KAM teams.
- Inside sales and KAM teams are among the few that expect all reps to receive at least 75% of target payout, reflecting the high value that the teams are meant to bring.
MBO Importance Continues to Grow
MBOs have been playing an important role in rep compensation due to the need for reps to be effective in a more complex sales environment. MBOs are increasingly being used to increase rep efficacy by increasing motivation, clarity of objectives and achievement of company goals. Companies are demonstrating that they value the achievement of certain objectives more than pure sales, reflecting that there may be other factors more important for long-term growth.
- Half of companies use MBOs, similar to last year.
- MBOs are the second most used IC component besides sales.
- Of the companies considering an IC plan without a sales component, most of them are planning on using an MBO-based plan.
- The total weight of the MBO portion of sales plans has either remained constant or increased across all sales teams.
- Managed-care and KAM teams predominantly use MBO-based plans; over 80% of these teams use them.
We believe that these trends are inspired as companies look to motivate rep performance and to maintain a competitive advantage in an increasingly complex market. Many of these changes focus on long-term growth and are an evolution from the more short-term-oriented, traditional sales-based models that previously dominated the industry.
Interested in learning more about the key results of this year’s ZS Incentive Practice Research? Join us on November 5th at 1:00 PM CST for our live webinar.
Please click here to register: https://vts.inxpo.com/scripts/Server.nxp?LASCmd=AI:4;F:QS!10100&ShowKey=26849