Years ago, a cereal maker ran a commercial in which children who'd eaten oatmeal for breakfast floated to school, snug in
a protective bubble of warmth. Today, the same imagery comes to mind with respect to the country's 85,000 pharmaceutical salespeople.
They are protected to a certain extent from the chilling winds of the economy, and they ride high above other salespeople
when it comes to compensation.
Despite the economic struggles that other industries face, pharma enjoys relative health and vitality. Companies continue
to expand their sales forces, and the competition for talent is as fierce as ever. The most desirable candidates have multiple
offers to choose from, and top performers can change jobs easily. In such an open job market, employers naturally turn to
compensation as a key strategy for attracting and retaining talent. Consequently, sales reps are the happy beneficiaries of
escalating salaries and more and better perquisites.
The results of the 2002 compensation module of Hay Group's annual Sales Force Effectiveness Study confirm that many of the
same compensation issues that have challenged pharma companies for the past few years are still in play today. With their
compensation plans, companies are still looking for ways to:
- distinguish themselves from one another in the clamor for talent
- attract experienced employees, both in sales and marketing
- drive top performance
- retain talent.
When Will Enough be Enough?
Each year, the number of salespeople calling on a finite population of doctors breaks a new record. Logic suggests that, at
some point, the market will be saturated with sales reps and pharma companies will stop sending more out. But the industry
hasn't hit a turning point yet, and it looks as if additional salespeople will keep on coming, like the brooms in Fantasia's
memorable sorcerer scene. In 2001, 60 percent of the companies participating in the survey expanded their sales forces, while
none decreased in size. About the same percentage reported plans to expand their forces in 2002. Companies are, it seems,
in their own "arms race." They are all after the maximum number of physician impressions, and no one wants to be the first
to cut back.
The only sign of a slowdown can be seen in the use of contract sales organizations. Fewer companies use contract sales forces
than a year ago, and among those who use them, more than a third expect to decrease their use in the future. It could be that
manufacturers are relying on them less because they have become more efficient at hiring their own sales organizations. In
fact, one company hired nearly 400 new sales reps in six weeks.
Turnabout in Turnover
In recent years, company recruiters have been pressed not only to hire additional reps, but to replace those lost to voluntary
attrition. Turnover among primary care physician reps peaked at 19 percent in 2000, then shrank to 12 percent in 2001. Although
the trend may be related to the general economic picture and a change in workers' outlooks after the catastrophes of September
11th, pharma companies also deserve a good bit of the credit. Hay Group's 2002 Recruitment, Retention, and Motivation in the
Pharmaceutical Industry study shows that nearly 60 percent of participating companies have increased their focus on, and implementation
of, new programs and initiatives designed to improve retention.
On the other hand, turnover among specialty physician reps increased slightly from 9 percent in 2000 to 11 percent in 2001.
Demand for those reps resulting from the growth of specialty sales forces may explain that increase in turnover. Even this
seemingly small change could be a concern because specialty reps are an elite and experienced group-generally the last ones
a company wants to lose.
Most interesting is the fact that among high performers, pay is the number one reason for leaving a company. Among average
and low-performing reps, the primary driver of attrition remains, as it has traditionally, the person's immediate supervisor-with
compensation running second. (See "Why They Leave," page 46.) That high-performing reps are motivated by money is no surprise,
but the extent to which that sets them apart from others may be. Companies that place increased emphasis on rewarding top
performers are obviously on to something. They should not forget, however, that even within that group, the "immediate supervisor"
is the second most often reason that people choose to leave.
Basics of Base Pay
During the past few years, it seemed that salaries for salespeople within general industry were closing in on those paid by
the pharma industry. But the latest statistics show that the pharma industry has stayed ahead of other industries by 20 percent.
Between 2000 and 2001, the pharma's median salary increase was 5.5 percent, while general industry's was 3.9 percent.
At the same time, US pharma companies are trying hard to stay ahead of one another. Fully half, in an attempt to attract and
retain the best sales representatives and managers, target their total cash compensation between the 75th and 90th percent
of what the marketplace offers. (See "Targeting the Top," page 46.) That trend is reminiscent of Garrison Keillor's mythical
Lake Wobegon where "all the children are above average." Pharma companies are striving for the same statistical impossibility
of maintaining above-average salaries for everyone. The result is that the median spirals upward just as companies try to
come in above it. Because those companies collectively move the whole frame of reference, it makes it difficult for any individual
one to pull ahead of the crowd and set itself apart with its pay practices. Despite their best efforts, all that most companies
manage to do is to maintain their compensation at parity with the competition.