Tearing Up the Rule Book - Pharmaceutical Executive


Tearing Up the Rule Book
Sales compensation practices are due for an overhaul in 2010

Pharmaceutical Executive

Pay Scales: Onward and Upward

Figure 3
Companies participating in this year's survey continue to use their salary structure as a means to attract and retain sales talent. Eighty percent make annual adjustments to their salary scale in response to the competitive market, and increasingly pharmaceutical employers are using market data to set their pay levels. The average increase in salary structures held steady between 2008 and 2009 at 3.3 percent, while the average merit increase of 3.3 percent was slightly less than the 3.9 percent average offered in 2008.

Figure 4
Surprisingly, in light of industry dynamics, base salary for sales positions continues to increase year over year. The median base salary for sales reps is $76,900, up from $74,500 in 2008. (See Figure 3.) Still, base pay as a percentage of total compensation declined very slightly from 2008. In 2009, total compensation was split 74/26 between base pay and incentive compensation. (See Figure 4.)

New Metric: Customer Focus

Figure 5
Within responding companies, most incentive compensation plans across the sales organization are based on three performance metrics. Prescription volume, market share, and revenue attainment continue to be the primary criteria for determining incentive compensation payout, with qualitative measures most often used secondarily. (See Figure 5.) Overall, the surveyed companies apply a 90/10 ratio of quantitative and qualitative measures.

Figure 6
The use of qualitative measures has increased this year, especially for account, regional, and district managers. Across all plans, the most common qualitative measure is selling skills/call quality, followed by territory management and teamwork. (See Figure 6.) Interestingly, only 19 percent of all plans factored customer focus/satisfaction into their performance measures—a situation that will likely no longer be the case in plans created for the new commercial models. Forty percent of the surveyed companies indicated that they are planning to adopt a more customer-centric sales model.

Once organizations are aligned to their new customers, the goal for all but traditional sales reps will shift from reach and frequency, which can be measured quantitatively, to the quality of interactions with customers. Performance measures for the account-based roles will reflect the types of discussions being conducted with key influencers, and will involve shared goals for everyone on a team. As this commercial model matures, customer and health outcomes measures will be integrated into the commercial scorecard.

Increased use of quantitative or goal-based measures, both team and individual, are caused by two factors. The first is the more tactical problem of linking information to performance. The second is developing roles for account management responsibilities. The implication is that incentive plans that focus on target achievement versus commission is the appropriate methodology for the incentive.

Seventy-three percent of the surveyed companies currently base their incentive compensation on individual performance, with performance against goal the most common measure. The use of rep ranking continues to decrease, with about half of responding companies using it to some degree. Around one-fifth of the plans use ranking exclusively. Despite its limitations, this trend will continue with the increased focus on overall performance.

Interestingly, only 23 percent of respondents modify their incentive compensation framework to adjust for territories that are heavily influenced by managed care. This is another indicator of changes to come, though pharma companies have not figured out how to modify their approach in the current model.

In a reversal of survey findings in 2008, most sales positions—hospital representatives being the exception—exceed their daily targets for number of sales calls. The average general physician rep makes nearly 13 calls per day, while the average target is 7.8. Given anecdotes of downsizing combined with reduced access, one has to wonder whether this increase is because companies have downsized their sales forces, but have not yet reduced their reliance on a reach-and-frequency selling model.


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