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How medtech leaders are revising sales incentive compensation plans

Posted by Tobi Laczkowski on April 23, 2020



4365_TobisICRoundtable_BlogChad Albrecht co-wrote this post with Tobi Laczkowski.

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Sales force incentive compensation often is one of the largest operating expenses for medical device companies. Many rely on analytics and qualitative factors to design and manage an optimal IC plan, set territory sales quotas and balance trade-offs across a variety of dimensions. These exercises are difficult enough in “normal” times, but with the COVID-19 pandemic, these are anything but normal times.

For most companies, the net impact has been reduced sales as delayed and canceled elective surgeries and other medical procedures have brought orders to a screeching halt. Some companies that manufacture essential products such as ventilators, PPE and COVID-19 tests, have had the opposite experience: Order activity has jumped at an unprecedented rate. In either case, the steady-growth performance that the typical medtech firm was planning for has been replaced by a massive upward or downward revision.

We recently held two virtual roundtable discussions—expanded from one roundtable due to high demand—to discuss COVID-19's impact on IC and the ways in which the industry can respond. More than 30 participants, mainly commercial medtech leaders responsible for setting and managing their organization’s sales force IC plans, brought their expertise to bear for this community of interest on short notice.

Overall, the group agreed that we’re still in the highly uncertain phase of forecasting for the remainder of 2020, as evidenced by the figure’s orange dashed line (see below). Each of the participants faces the difficult but necessary task of designing and managing a plan that fairly treats the sales force during this phase, and during future phases, without knowing whether or not the business will fully return. No matter what’s in store, frequent communication across the organization will play a key role. As one executive said, “It’s going to be important to communicate regularly, even if only to say that we don’t know everything yet.”

 

We hope that by sharing a synthesis of the conversations that you’ll be inspired to apply some of the thought leaders’ concepts when appropriate. Here’s how the industry executives we spoke with are managing through the pandemic and planning for the potential impact down the line:

  1. Off-setting early disruptions to forecasts: Most organizations were only modestly affected during the first quarter. The large swings in business occurred during the final two weeks of the first quarter, by which time most of the companies had already locked in their performances. The companies that already experienced significant swings in demand during March are mitigating the impact by eliminating the March performance altogether, or by including March data only for those individuals who would be helped by it. The “better of two or three months” philosophy protects the sales force from experiencing significant swings outside of their control. This “better of” policy pervaded our conversations, reflecting the guiding principle that salespeople are still fully committed to delivering what results they can.
    The fortunate few companies that experienced massive gains during the first quarter generally are instituting some version of a “Force majeure” clause, which provides management discretion in the scale of the sales force payouts. Along those lines, one of the participants shared the following approach, “We are going to do what we can to reward creative problem solving, and also remove windfall orders which aren’t reflective of sales force performance.”

    The general philosophy for these companies, like those that are experiencing significant drop-offs in sales, is to share some of the impact (whether that be upside or downside) with the sales force, but not provide dramatic windfall payments. This also will have the longer-term benefit of more appropriately baselining performance when quotas are being set for 2021.
  2. Preparing for more significant disruption: The group agreed that a more significant change in forecasted performances is expected during the second quarter. As a result, the policy adjustments likely will be more dramatic. Most of the companies are implementing payout floors, effectively limiting the downside for the field team. The specifics of these guarantees vary by organization, such as “pay full salary plus half IC” or “pay x% of total target compensation,” but most of the participants described aiming for total compensation to be in the 70% to 90% target range.

    One company already is taking more drastic measures, announcing that there would be no incentive payouts in the second quarter. On the other hand, some companies are providing extra “hazard pay” for the personnel who are still required to be inside hospitals and ambulatory surgery centers.

    Most of the leaders described moving to shorter-duration measurement periods, given the fast evolution of this year’s forecasts. As leaders look beyond the first half of the year, they anticipate that the recovery will occur in a localized fashion—with some geographies getting closer to “normal” faster than others. As a result, these leaders are planning to take a detailed look at performance metrics by geography and make case-by-case estimates of business potential, performance measurements and payouts. This approach will require careful analytics and likely will continue to follow the “better of” philosophy described above to reflect the spirit of the analysis.
  3. Managing evolving needs: In terms of activities, these leaders described keeping the field team actively engaged via online sales and product training and by taking care of back-office priorities such as CRM clean-up and account planning. One medtech leader told us, “We’re going to do right by our sales force…and in turn, we expect that they will do the right things, too.” The organizations also are encouraging frequent outreach to customers to determine how they can add value, even if just through phone support. In ideal situations, customer relationships will grow stronger through these trying times.

    Leaders have found that their respective sales teams generally are compliant in undertaking these activities without resorting to formal management by objectives (MBOs). As the future unfolds, though, some are considering instituting MBOs to better structure the evolving expectations. For example, one participant shared that, “We’re likely to limit MBOs, and we still expect our sales team to prepare themselves for the second half of the year when things reopen.”

Each of the roundtable sessions had an optimistic tone, and the leaders rallied around a common purpose of fulfilling the industry’s mission of getting the right therapies to the right patients, while also embracing their evolving responsibilities toward improving population health. The participants expressed interest in reconnecting as a group to continue to provide ideas and share experiences related to IC and other topics. As we look forward to future discussions and serving as thought partners along the journey, we’ve also spent the past few weeks reflecting on how proud we all are to be associated with such an important industry.

For more ZS insights on the impact of COVID-19, visit zs.com/COVID19.


RELATED CONTENT 

BLOG POST: How Sales Leaders Are Tackling Coronavirus Fallout

BLOG POST: Finding Purpose: The Role of the Sales Force During COVID-19

BLOG POST: Four Ways to Adjust Your Sales Compensation Plan


 

Topics: Management by Objective, Incentive compensation, sales incentive plan, medtech, Tobi Laczkowski, covid-19

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AUTHORS
Brian_Chapman_thumbnail
Brian Chapman
Principal,
ZS Associates
Tobi_Laczkowski_thumbnail
Tobi Laczkowski
Principal,
ZS Associates
Will_Randall_thumbnail
Will Randall
Manager,
ZS Associates
Matt-Scheitlin-London_thumbnail
Matt Scheitlin
Associate Principal,
ZS Associates
Andy-kach_thumbnail
Andy Kach
Associate Principal,
ZS Associates
Bhargav_Mantha_thumbnail
Bhargav Mantha
Associate Principal,
ZS Associates
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