Sales teams for large pharma/biotech companies are increasingly focused on long-term growth strategies, research from ZS Associates shows. This long-term vision is reflected by their increasing investment in internal and KAM teams. The research further shows that the industries are seeking to curb the extremes of sales compensation: 33% of companies use pay-out floors, while 41% place an upper bound on pay-outs.
Consultancy firm ZS Associates recently released its latest ‘Incentives Practice Research’ study. The study explores the sales strategies employed by large pharma/biotech companies, considering changes that have come to affect the market. This years’ research shows that the sales incentive plans have not changed considerably over recent years. Particularly variable pay for reps and managers is comparable to the year previous and most teams continue to rely heavily on quotas or management by objectives (MBOs).
The largest users of MBOs are Managed Care and key account managers (KAM) teams, with 87% and 83% take-up respectively. Both have correspondingly low take-up of commission and relative-based bonus models. Oncology teams use the highest level of quota-based bonus. Retail-primary care and retail-specialty are the least likely to use MBOs at 10% and 15% respective. Overall, quota-based Bonus remains the most common incentive plan.
The largest trend, according to the research, is that the pay-out range is flattening, following a tendency prevalent in recent years. Companies are moving towards offering compensation plans that are predictable, whereby the variability between the highest and lowest performers is decreasing. The move is seen as a means to improve morale among sales teams, with particularly the lowest end benefiting from a pay-out floor.
The research finds that around 74% of companies now use pay-out floors and/or placing pay-out caps on their star performers of around 250% of target. Further, the number of sales reps earning $0 within the bonus period has dropped from 10% in previous years to less than 5% in 2014.
MBOs and awards
The use of MBOs is playing a more and more important role in the compensation of reps, as they incentivise effectiveness in complex sales environments. The compensation mechanism provides clarity of objectives and achievement of company goals. This allows companies to highlight that certain activities are valued above pure sales, activities that factor into the long term growth of the company. Like last year, half of companies use MBOs, with the format now the second most used incentive compensation component. The research further finds that more than half (59%) of companies continue to use spot awards in their compensation programmes and 94% had a recognition plan in 2014.
According to ZS Associates, there are a number of new trends which reflect the sales environment becoming more complex. One key change is that inside sales teams and key account managers (KAMs) are becoming more prevalent in organisations. These teams are providing the increasingly important role of delivering high-value targets which further expand the reach of products that are outside the range of retail reps. Increases in competition are expected to see these teams become more important for organisations moving forward. The research shows that inside sales and KAM teams are among the few that expect all reps to receive at least 75% of target pay-out, reflecting the high value that the teams are meant to bring in.
The research concludes that: “We believe that these trends are inspired as companies look to motivate rep performance and to maintain a competitive advantage in an increasingly complex market. Many of these changes focus on long-term growth and are an evolution from the more short-term-oriented, traditional sales-based models that previously dominated the industry.”