ZS conducts an annual survey of medtech companies to understand how their sales incentive plans are changing. This year’s version, which we conducted in the summer of 2017 and will be released in late August, begins to show how upstream changes to the go-to-market models—such as the impact of integrated delivery networks—are beginning to affect sales compensation plans downstream.
The creation of IDNs is leading medtech companies to add key account management roles to the marketplace to effectively sell to and support these ever-expanding enterprises. In fact, since 2015, our survey shows that the percentage of medtech companies with this role has increased from 67% to 88%.
KAM roles have unique needs for their sales incentive structure, which is why their sales incentives tend to look very different than the “typical” sales incentive plan. For example, KAMs usually have 30% of their pay at risk in the incentive plan, whereas territory managers have 45% of their pay at risk. In other words, KAMs have fully one-third less pay at risk than their territory counterparts. In addition, management by objectives are used almost twice as frequently among KAMs as they are by territory managers. MBOs tend to be used to address some very specific situations faced by KAMs in the handful of accounts that they manage. For example, some large IDN-wide deals will take more than 12 months to close, meaning that results will not be seen in the current incentive plan year. In this case, MBOs are put in place to assess and reward progress during the selling cycle.
With KAMs and large-account-based structures comes more team selling. This means less individual impact on the sales outcome than in the past for the traditional medtech sales rep. This doesn’t happen every time everywhere, but the single medtech “lone ranger” working on her own in isolation is far less prevalent than it used to be.
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Because these roles have less of an individual impact on the results, one could speculate that the amount of pay at risk in incentives should begin to go down in parallel with this reduction in individual impact. Indeed, we’ve begun to see just that. Of the six roles surveyed in the report, half of them showed a reduction in the percentage of pay at risk in the 2017 survey compared to the 2015 iteration.
Companies also have started to lower reps’ ability to earn extreme payouts. This could be related to the lower individual impact or to pressure to reduce SG&A spend—the topic of my next blog post—but regardless of the reason, the survey shows that it’s happening. The amount that companies are willing to pay their top 10% individual performers (as a multiple of target incentive) has dropped this year. In 2015, across all roles, companies targeted top performers to earn 2.3 times their target incentive amount. This year, not a single role targeted greater than 2.0 times their target incentive for their top performers. Moreover, there was a sizable increase in the percentage of companies incorporating decelerators into plans as a way to limit extreme individual payouts.
It’s too early to call these things trends, but it seems that the upstream changes in medtech go-to-market models are being felt downstream in sales incentive compensation. Less pay at risk and lower upside opportunity are all consistent with the move to IDN selling.
In my next blog post, I’ll tackle the other major upstream change going on in medtech: the pressure on SG&A spend and how that pressure also is beginning to impact sales compensation.