pay gskGSK has been in the news frequently over the past three years with respect to changes in its incentive compensation program.

In June 2010, GSK announced that bonuses for salespeople in the U.S. who work directly with HCPs would no longer be based on individual achievement of sales targets, but will be based primarily on the service they deliver to customers. Bonuses would be determined, in part, by customer feedback, and by a sales professional’s adherence to the company values of transparency, integrity, respect and patient-focus. In July 2012, GSK entered a Corporate Integrity Agreement with the Office of the Inspector General of the US government, stating in part that GSK will not provide financial reward for its salespeople based upon the volume of sales of GSK products within a given employee’s own territory. Most recently, a December 2013 article in The New York Times described that GSK is extending the incentive compensation provisions to the rest of its global business by 2015.

With each news release, ZS receives many calls from both our clients and media outlets asking for our point of view on this topic. Will the GSK model spread and should other companies consider it?

Should you consider something like this?

The simple answer is… it depends. But a basic compensation checklist can help you determine your readiness to explore a new compensation model.

What are some of the common objectives of an incentive compensation program? Such programs typically are intended to:

  1. Direct behavior
  2. Attract and retain employees
  3. Support company culture
  4. Motivate employees
  5. Reward performance
  6. Reinforce sales force strategy and drive financial results such as sales, share or margin

While this list is not intended to be comprehensive, it does highlight some of the key objectives to keep in mind when considering any change to your compensation program. I imagine that the changes to GSK’s incentive plan had a significant impact on the first item on my list: It certainly sends a clear message, as should any compensation plan, around what behaviors are expected and rewarded.

For the second and third points, with some longevity (and GSK has had three-plus years since the initial announcement for the culture to begin to change), individuals will be attracted to a company whose incentive plan is aligned with their own career goals and aspirations. Similarly, individuals who experience dissonance with the plan will either modify their behaviors and expectations or leave the company. The ideal end result will be a state of equilibrium between what the company incents and what the sales force expects.

For the fourth and fifth points, does such a plan motivate or reward employees? That answer likely depends on the constitution and make-up of your sales force. The type of sales person who will be attracted to an individually-based plan that measures sales performance with significant upside earnings opportunity will be different from the type of sales person who will be attracted to a plan that is team-based and with more distributed opportunities. Of course, different people are motivated by different things. It could be money, but it could also be social affiliation, recognition or other non-monetary rewards. So long as your incentive program’s rewards are aligned with the desires of the sales organization, you will realize motivational benefits.

So, is this a model you should consider? Any compensation program can work if you have alignment across these various objectives. However, many companies would struggle with such a program because the sales force culture and personalities would not be aligned around this new way of operating and would require fundamental changes to the recruiting, hiring, training, measuring and rewarding of your salespeople. It would be a radical change with the potential to cause disruption in the sales force.

Although this model is attracting interest, it has yet to gain strong traction within the pharma industry. Is this something your company is interested in?

 

About the Author

Steve Marley is a Principal at ZS Associates in Evanston, Ill., and a member of ZS's sales compensation leadership team. Steve holds the Certified Sales Compensation Professional (CSCP) designation and has more than eight years of sales compensation consulting experience spanning a variety of industries, including software, distribution, financial services, non-profits, pharmaceuticals and medical devices. He has helped companies design effective compensation plans, set motivating quotas and implement efficient compensation administration programs. Steve is also a regular author for ZS's Sales Compensation blog, The Carrot.

Topics: sales compensation, Steve Marley