Companies also showed a greater reliance on market data to set salary ranges (49 to 50 percent for 2006 vs. 38 to 41 percent
in 2005). The past year has seen a notable trend away from using internal sales/profit results (down from 41 percent in 2005
to 23 percent in 2006) toward using external data, like Xponent and Drug Distribution Data from IMS, to set salaries for reps
and determine their performance.
Across all different types of reps, incentive payout is based primarily on individual performance (72 percent of all plans).
Predictably, district and regional managers are also judged on their area's performance, while corporate performance is a
common basis for incentive comp for national account managers.
An individual performance against a defined target is the primary mechanism used in 66 percent of incentive plans. And compared
with 2005, companies are using matrix calculations—metrics that incorporate two variables—with less frequency (14 percent,
compared to 34 percent in 2005).
Less than a third of firms put an upper limit on incentive payout, but when they do, the maximum ranges from 170 to 250 percent
of the goal. This obviously gives companies the latitude to reward superior performance when they see it.
Other Rewards: Easy Come, Easy Go
Other perks that were once tied to performance—laptops, Internet connectivity, cell phones, PDAs, car options, and single
rooms at sales meetings—are increasingly being thought of as simply the cost of doing business. (The percent of companies
that gave out PDAs for performance, for example, dropped from 67 percent in 2005 to a mere three percent in 2006.) Other types
of carrots—trips are the most popular, followed by cold cash—are still being offered, but these rewards account for only six
percent of total incentive-compensation budgets.
In addition, pharmaceutical employers are less likely to include sales reps in their long-term incentive compensation, such
as stock options. Among companies that offer such plans, sales reps were included 32 percent of the time in 2006, compared
with 55 percent in 2005. This is yet another sign that companies are reconsidering the level of their investment in the sales
force, relative to the return they receive.
Cash Compensation: Slow Progress, if Any
The average total compensation for all kinds of sales reps increased only slightly—from $89,600 in 2005 to $90,100 in 2006.
And for the first time in recent memory, total compensation for PCP reps leveled off, signaling the end of the heyday that
these sales forces have long enjoyed. Again, this reflects the fact that companies are beginning to look more closely at what
they spend on PCP talent, particularly as the demand diminishes. Specialty reps, however, saw stronger growth in their total
compensation, up from $99,100 in 2005 to $103,300 in 2006. For hospital reps, total comp hiked from $105,900 to $109,600.
Still, even these increases are moderate by past standards.
In this survey, pharma executives were asked how competitive they intended reps' compensation to be compared with other companies.
Most participants responded that they wanted to offer their reps pay packages that were at least at or above the industry's
medium pay. However, the difficulty in setting a compensation target in this way is that the market median for reps' pay is
influenced by what all companies do collectively. Therefore, it is a moving target. Since no company intentionally targets
below the market median, the effect is to ratchet up the true median, so that many companies end up paying more than they
intended—which helps explain why pay rates have gone up for so long.
That said, all pharmaceutical companies continue to target at or above the median, with a "median target strategy" somewhat
more prevalent in 2006 than 2005 (54 vs. 49 percent). However, in 2006, none of the companies surveyed targeted rep compensation
at the 90th percentile or above. Clearly, the much-discussed pay inflation of the past decade is beginning to diminish.