Sales Management: Pay-for-Performance

Incentive management helps align sales force strategy with reps' compensation.
Jul 01, 2005

Mark A. Stiffler
More than half of all mergers fail due to integration issues, according to Booz Allen Hamilton. The most oft-cited reasons for that failure are people-related: slow execution, culture clashes, low retention rates, and lack of communication.

The key to proactively addressing these people-related failures is ensuring that all employees in the merged organization understand what is important to the combined business, how each person can contribute to its objectives, and what measures and rewards are used to recognize individual performance.

Nowhere is that more important than in pharma's sales organizations. With all the mergers and acquisitions, a company can suddenly find its sales force doubled in size, with all reps calling on the same doctors, perhaps even delivering contradictory messages about the newly merged product line—with each rep rewarded or penalized without regard to reinforcing the right sales tactics.

Instead, companies might consider using enterprise incentive management (EIM) to better manage reps' compensation, including commissions, performance-based bonuses, and other types of variable-pay plans.

EIM solutions clearly align the sales strategy with incentives by eliminating the various and confusing implementation and management constraints. In doing that, EIM also
» enhances morale and trust by reducing errors and inaccurate payments
» increases productivity by eliminating "shadow accounting" done by individuals because they don't trust the accuracy of plan results
» improves decision-making by sharpening visibility into plan performance
» increases profitability by reducing administrative and IT costs.

Incentives are an important way for a company to communicate its priorities to its sales force, and to make clear that sales reps can earn more money by supporting the right behaviors.

Wyeth and Amersham Biosciences are two companies that used EIM to align reps' rewards with sales strategies after undergoing mergers.

Case Study: Wyeth In the early 1990s, Wyeth was using an internally developed, mainframe-based incentive-compensation management system. Although this system once served Wyeth's needs, it became increasingly difficult to maintain when Wyeth merged with American Cyanamid in 1994, doubling its sales force.

The two companies had different methods for managing employee performance and administering incentive compensation plans. After the merger, Wyeth found itself with dozens of incentive plans—with each plan working differently based on the products reps sold and the part of the organization in which they worked—for several thousand employees. This complexity meant the field force didn't have a clear understanding of how its performance affected its incentive payments.

Wyeth knew it needed a new system to manage the administration of reps' diverse compensation needs in the newly merged company, and to provide sales performance reporting. It considered a range of possible EIM solutions, including custom software applications to be used in-house, third-party software, and complete outsourcing of the incentive-compensation management process. The company ultimately decided to implement an EIM solution as an outsourced service, relying on the solution provider to administer the day-to-day details so Wyeth's staff could concentrate on more strategic issues.

The outsourced service solution transformed the company's incentive-compensation management process. Specific budgets for incentive compensation programs were created and spending was tracked, enabling the company to manage the budget closely and ensure equality across different groups. That allowed managers to understand whom were the most effective reps, and what were the most effective behaviors. It also ensured that Wyeth could forecast its sales incentive expenses accurately, and manage the budget if a particular product proved more popular than predicted. Wyeth also was able to improve on other measures, such as reducing by a third the time it took to mail bonus reports to reps.

Case Study: Amersham Biosciences When Amersham International and Pharmacia merged life sciences business in 1997 to create Amersham Biosciences (now a division of GE Healthcare), Amersham had been acquiring two to three companies per year. This acquisition spree opened a Pandora's box of diverse sales cultures and approaches to pay-for-performance.

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