Tearing Up the Rule Book

Sales compensation practices are due for an overhaul in 2010
Feb 01, 2010
By Pharmaceutical Executive Editors

As a new decade unfolds, pharmaceutical manufacturers must straddle two worlds: one that features the legacy commercial model directed to prescribers, and another that embraces a new model focused on payers and other key stakeholders. As companies experiment with ways to engage a broader set of decision makers, they're envisioning new roles and organizational structures. According to Hay Group's 19th annual Sales Force Effectiveness Study, this is still an emerging phenomenon; the industry's sales administration and compensation functions are still rooted in the legacy model that prizes reach and frequency in physician contact.

The data in this survey paints a picture of the status quo for many study participants, but change is coming rapidly for others. But the data do not tell the whole story. The first movers have changed their selling model: Resources are being redeployed, emphasis is being given to account management, and the traditional selling and promotion model is being redesigned. These are exciting times for the life sciences industry: it is reshaping how it adds value at the commercial level, and the best players will use this transition as an opportunity to re-shape how the industry uses the selling and distribution channel. It follows that they must also develop fresh compensation plans built on different measures of performance.

While many senior executives are making plans to revolutionize their commercial organizations, data suggest that the implications for performance measurement and compensation are being left to implementation. While senior executives are addressing the fundamental direction of their companies, a roadmap does not yet exist. This presents both an opportunity and a threat for sales and marketing.

Rightsizing the Sales Force

Figure 1
The painful headlines about pharmaceutical companies reducing field sales forces are no longer standard news fare. Having cut 10 to 20 percent over the past two years, companies are now leaner, and their expenses are more in line with lower growth expectations. In fact, half of the companies participating in the survey report that they've seen little or no change in the size of their sales force over the past year. A third of survey participants said that their sales force actually grew during that time frame.

The continuing need to right-size is, however, very much tied to organization type. Large pharmaceutical companies are dramatically more likely than small or mid-sized companies to state that they still have too many sales reps. (See Figure 1.) This is a leading indicator of changes coming to how these organizations go to market.

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