It takes a full-time crew of 17 ironworkers and 38 painters working year round to maintain the Golden Gate Bridge. Their work is never done; no sooner do they repair and paint one area of the 4,200-foot span, then the corrosion from the sea air requires that they start in on another. In a similar way, compensation managers in the pharmaceutical industry are involved in their own never-ending effort to perfect the systems they use to measure and reward the marketing and sales organization. Compensation plans, at least in this industry, are works in progress. They can never be "done."
Percentage of Voluntary Turnover
One reason a compensation plan is so complicated: It needs to provide incentives for a wide variety of behaviors. At the same time that it articulates strategy and directs behavior, the compensation plan must motivate the right achievement, and offer rewards that retain the top performers and attract fresh talent. To do that, it must be forever adjusting to corporate goals, keeping pace with the market, and incorporating advances in data sources. Hay Insight's 2005 Pharmaceutical Sales Force Effectiveness Study, conducted in partnership with Pharmaceutical Executive, illuminates the current pay practices of 52 participating pharmaceutical companies and reports on the changes they expect to make in the coming year. The results presented here indicate that the pharmaceutical employment market is, indeed, changing—and that many existing practices will require further tinkering.
Target Pay Pogitioning: Total Cash Compensation
Some of the study's highlights:
Staffing: Turning a Corner
- The rate of sales force expansion varies by type of pharmaceutical company—Big Pharma is not expanding, while biotech and specialty companies are.
- Sales staff turnover is in the double digits, and highest among specialty pharma companies.
- Most companies target the market median for base pay, saving their more competitive posture for incentive compensation.
- Companies are trying to spread the wealth by lowering the threshold required to receive an incentive payout.
- The targeted positioning of incentive compensation has shifted slightly downward relative to the market median over the past few years.
- Qualitative measures for determining incentive compensation are currently out of vogue.
- Almost half of the surveyed companies pit their reps against one another with relative ranking to allocate incentive compensation.
- The complexity of incentive-compensation plans often blurs the distinction between levels of performance, and thereby minimizes pay differences.
Three years ago, we asked in a Pharm Exec Sales Force Survey how long the pharmaceutical industry could continue expanding its sales force. Today, if Big Pharma's sales-force bubble has not quite burst, it is definitely deflating. None of the survey participants representing big companies predicted that their sales force would grow "somewhat" in 2005, much less grow "a great deal." In contrast, 15 percent of the biotech companies and 22 percent of the specialty pharma companies surveyed planned to grow "a great deal" and another 65 percent and 18 percent, respectively, planned to grow "somewhat" over the course of 2005.