In Sales We Trust - Pharmaceutical Executive

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


Pharmaceutical Executive


Pretty Packages The average salary for all levels of pharmaceutical reps is $62,400 with another $19,300 in cash bonuses. That still compares favorably to what other industries pay, although the gap is diminishing.

More than 80 percent of responding companies make salary structure adjustments in response to the competitive market, even though most look to attract talent on the strength of the variable portion of pay. The median salary structure increase for the first half of 2005 is expected to be 3 percent, which represents a slight decline for most job levels from last year's projections.

Compression, or a lack of salary differentiation between what new hires and tenured sales people make, continues to be an issue. Although 12 percent of the respondents cited it as a reason for making salary structure adjustments (up from 5 percent last year), the Hay Group's experience suggests that compression may actually be occurring in many more unsuspecting companies. Companies should perform analyses of actual pay to be sure that compression has not crept into their structure.

Companies are forecasting that their merit increase budgets will remain at 4 percent in the coming year. The factors that determine the amount of a person's merit increase are changing—and not necessarily for the better. The use of bonus results to determine merit raises increased from 37 percent in 2002 to 43 percent in 2003 and to 64 percent in 2004. At the same time, fewer companies are relying on core values and compa-ratios to make merit-increase decisions. (A compa-ratio divides an employee's base salary by the salary midpoint for the particular job and level. The ratio shows an individual's position within their current pay grade.)

The inference is that companies lack confidence in their performance management plans and are relying, by default, on the existing quantitative measures built into their incentive compensation plans. The implication is that the incentive plan had better be well conceived because it is doing double duty. And, the message is that sales results are what matter first, second, and third.

The Incentive Factor Companies regard the variable portion of pay as more important in attracting sales reps than base salary. Although they want to be competitive with base salary, they want to be even more competitive with incentive compensation.

Between 2003 and 2004, companies shifted their goals when it came to setting base salary relative to the market. In 2003, 42 percent aimed to set their base salaries for sales reps between the 75th and 90th percentiles of the market. In 2004, only 19 percent of the participating companies did, and the percent aiming for the median rose from 39 to 69.

In contrast, 58 percent attempt to set their total cash compensation above the median. Absolutely no one aims below the median, so the "median" is merely a mirage that is constantly moving. Companies that set their total compensation at what they believe to be the median will, in actuality, be targeting below the market and will not be competitive after all.

Incentive compensation should be used to differentiate pay based on performance, but survey results show that pharma companies may be spreading the wealth too equally. Ideally, the highest performing reps should receive an incentive payout double that of the average performer, and the lowest performing reps simply should not receive incentive compensation at all. In practice, companies are compensating top performers only 50 percent more than average performers and are overpaying poor performers. (See "Lacking Incentive,")

Incumbents in product management roles enjoyed substantial increases in their incentive compensation between 2003 and 2004, reflecting the growing importance of the function to market results. The increases were most substantial among lower-level positions. Associate product managers saw a whopping 28 percent increase while product managers and market research managers received an average 16 percent hike. (See "Product Management Pays," )

Quality Versus Quantity Many pharma companies continue to use relative ranking of salespeople's results to force the distribution of the incentive budget. After falling in popularity during the past few years, use of ranking as the primary payout modifier increased from 18 percent in 2003 to 25 percent in 2004. The use of ranking as a partial modifier increased from 19 percent in 2003 to about 27 percent in 2004. (See "Ranking Reps on the Rise," ) Apparently for some companies, the ease of making payout decisions in this manner and the safeguard it provides against exceeding the incentive budget outweighs the negative consequences of fostering internal competition among reps.


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