In Sales We Trust - Pharmaceutical Executive


In Sales We Trust
The survey reveals a shift toward sales volume—and away from training and competencies—as performance metrics.

Pharmaceutical Executive

The success of sales force incentive programs depends largely on an organization's ability to measure performance against target goals. These goals can be either quantitative or qualitative. The survey data indicate that prescriptions, revenue, and market share, all quantitative measures, continue to be the most prevalent primary criteria (41, 35, and 34 percent respectively) used to determine payout. Corporate profit and qualitative measures, such as competencies and achievement of other objectives, tend to be used as secondary measures. In fact, the mix of quantitative to qualitative measures is never less than 80/20 and sometimes is as high as 94/6 across the various sales positions.

Among the qualitative measures (such as customer focus, sales skills, and staff development) that are used for all positions within the sales organization, one has become dramatically more popular: management evaluation/judgment. More than likely, dissatisfaction with their ability to measure other factors has lead companies to rely on managers to make the call. Unfortunately, many don't have the skills to evaluate staff properly and simply give everyone the same, or nearly the same, rating. With each manager making such unstructured judgment calls, there's bound to be inconsistency across the organization in the way managers apply the ratings.

Most startling is the fact that companies have made the shift from qualitative measures to quantitative measures for national account managers. In 2003, a third of the performance measures used for these positions were qualitative in nature. In just one year, the qualitative aspect dropped to 11 percent for national account managers. Considering that it is difficult to quantify the performance of these positions—because they manage relationships and pave the way for sales—this is a curious move. The only plausible explanation is that companies have discarded their "management by objectives" measurements out of frustration and have begun to use quantitative measures by default.

The frustration, however, may resurface in national account managers themselves. They are now being measured on end results in a market that they can only indirectly influence rather than directly control. This practice creates a situation in which the organization's top talent is paid well—on results that can't be measured accurately. One solution would be to restructure account managers' pay to put the emphasis on base pay and have less salary at risk. At a minimum, the type of incentive metrics used should be reexamined.

Lateral Movement From a hiring standpoint, there is a downside to the recent economic improvement—the job market is more fluid and employees can find attractive opportunities elsewhere. So as the economy grows, so does the rate of turnover. Within pharmaceutical sales organizations, turnover among general physician sales reps hit 14 percent in 2003, distinctly up from its five-year low of 10 percent in 2002, but still a far cry from its peak at 19 percent in 2000. (See "Reps Come and Go," )

But every little bit hurts—a lot. The reported average recruiting and hiring cost of an entry-level sales representative is now $89,000. This figure includes recruiting, human resource (HR) time, salary, training, and travel costs associated with hiring a new sales rep, although it does not include the lost profit opportunities of a vacant territory or the managerial time required to coach a new hire. Based on the roughly 100,000 sales reps in the industry today, the additional cost of the increase in turnover from 2003 to 2004 is $356 million. (100,000 X .04 = 4,000 X $89,000 = $356,000,000)

One way companies can combat wanderlust among sales reps is to provide a well defined career path that gives aspiring reps advancement opportunities with differentiated pay and various career avenues. This is particularly difficult—but not impossible—for small companies.

The Hay Group has observed that smaller companies tend to have fewer job levels than larger companies and fewer other places within the company for sales people to move. But with some thought and creativity, even smaller companies can create attractive career paths for sales people that mesh with the organization's staffing needs, and many are doing so. For example, some companies offer sales people rotations and/or short-term assignments in areas such as marketing and training to keep them motivated and to make them well-rounded, which increases their ability to get promoted.


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