The survey data indicate that prescription volume, revenue, and market share continue to be the most prevalent primary criteria
(49 percent, 38 percent, and 31 percent, in that order) used to determine incentive-plan payout. Qualitative measures, especially
major-business-objective (MBO) results and managers' appraisals, tend to be used as secondary measures.
It is worth noting that the relative importance of quantitative performance criteria has increased, suggesting that managers
are more comfortable applying them than qualitative measures. In 2005, a full 72 percent of companies reported that they use
quantitative measures exclusively, up from 62 percent the year before. In addition, companies that use a mix of quantitative
and qualitative measures are increasing the weight they place on quantitative measures for nearly every sales position except
national accounts manager.
Measuring performance by numbers—as opposed to other factors, such as customer focus, teamwork, product knowledge, and territory
management—does not necessarily spell simplicity. Many companies continue to maintain fairly complicated plans that factor
in more than three performance metrics that often involve "monster" algorithms. (We recommend that three be the limit.) This
year, 22 percent of the responding companies fell into that category, compared with 15 percent last year. The percentage of
companies using more than three metrics for specialty reps doubled between 2004 and 2005 (from 12 percent to 24 percent).
The most common payout mechanism is performance vs. target/quota/goal, which is used as the primary mechanism in 60 percent
of plans. Matrix calculations (metrics that incorporate two variables) are used by a third of plans as a primary mechanism
and 49 percent of the time for GP reps. This is an increase from 36 percent in 2004 and is another way that companies have
added complexity to how rewards are determined.
Pharmaceutical/biotech employers, of course, want to distinguish between levels of performance and aim to distribute incentive
compensation so that the superstar receives twice the incentive payout of the average performer. But by watering down their
plans with too many measures, most companies only pay their outstanding performers one and a half times the incentive compensation
they pay the average performer.
Distributing the incentive budget based on a relative ranking of sales peoples' results is steadily gaining in popularity
with companies, if not with their employees. Overall, about 56 percent of companies use a relative-rank calculation as part
of incentive-compensation payout. Thirty percent of companies use relative ranking as the primary method of paying most of
their field reps.
While using ranking to determine payout is clean, easy, and has an inherent logic, it can push friendly competition between
reps into something much more adversarial. It also makes it difficult for reps to track their rewards as they go along. To
do so, they have to know:
- The performance (e.g., market share) of competing reps
- Their own performance
- Where that performance falls compared with other reps in the company.
Total Rewards: Looking at the Whole Picture
The good news for sales people is that total cash compensation has continued to grow for most sales and marketing positions
across the industry, regardless of the means used to calculate it. The average sales rep earned $89,600 in total cash compensation
in 2005, compared with $82,900 in 2004. Increases were particularly marked among specialty sales reps. The average first level
specialty sales rep's total cash compensation jumped from $73,200 in 2004 to $84,000 in 2005.
Other good news is that whereas last year some tenured district managers were earning less than their newer counterparts due
to salary compression, that anomaly has been resolved with changes in pay structure. There's a steady progression in pay for
district managers up through 25 years of service. The data also show a very strong uplift for tenured specialty sales reps,
particularly after the ten-year service mark.