Pharmaceutical Executive Europe - April 2008 - (Page 30) 30 Sales: Incentive Compensation April 2008 Pharmaceutical Executive Europe ● the need for more measurement of adherence to all forms of compliance and company-initiated ethics programmes; ● field force adoption and utilisation of supportive technologies such as CRM and closed loop marketing. Compensation schemes that recognise these innovations and the changing market place will represent the new best practice and help position organisations for continued success in the future. Success criteria Successful compensation systems will not only help strengthen the position of the company in its market place and align with the overall business strategy and brand objectives, but also motivate the sales force, retain the most capable sales practitioners, and be readily understood by all. This motivational aspect is now an area of increasing interest; the focus of investment in sales force effectiveness initiatives appears to be moving away from issues around the appropriate size and structure of sales teams towards how to encourage the sales team, and the individual rep, to deliver improved results. Such a qualitative optimisation programme is increasingly centrally driven, in particular by European-based HQs with central brand strategies and strategic goals to meet. This means that training and development, as well as frameworks and guidelines for incentivisation plans, are being increasingly drawn into the centre. As a result, corporate HQs that so far may have allowed affiliate companies flexibility and autonomy in this area, are increasingly aware of a range of different incentive programmes across their businesses and are seeking to normalise these and/or spread best practice by issuing tighter, more refined guidelines. Successful incentive compensation planning will always be built around a feedback loop of continuous process improvement (Figure 1). The first process step — the diagnosis of the existing plan — is designed to provide a fast and unbiased evaluation of its current status with stakeholders and to highlight possible improvement areas. In the diagnosis phase the incentive compensation plan is assessed against various key scheme attributes including: ● Strategic alignment. Are the key results areas reflected in what gets rewarded? ● Desirable sales force behaviours. Does the plan design generate the right set of behaviours from the sales force? For example, Figure 1: Continuous improvement loop in incentive compensation. IC Plan Evaluate existing IC plan to make changes if required Develop the IC plan strategy that allows sales force to align with corporate initiatives Implement Deliver periodic reports to measure performance and help sales force to find opportunities Operate Customise administration system, reports and procedures to deploy IC plan Figure 2: The potential impact of administrating more effective incentive compensation. Current Situation Reducing rep turnover by 2%–3% Save on costs associated with recruitment and training Vacant territories, lost relationships, etc. (0.5% of sales) (Assume 400 reps account for €200M turnover) Savings €300000 Gains €1 M Eliminating bonus overpayments ~ 5 % (Assume OTE €70K. Variable comp 25% = €14K x 400 reps = €5.6M @ 5 % ) €280000 KEY AREAS EXHIBITING CHANGE Competition — Slowing growth with intense share battle for high value customers Regulation — Payers having increasing influence over prescribing decisions Customer Power — Increasing power of third parties (such as IQWiG and sick funds in Germany) and consumers Substitutes — Product proliferation, patent expiries and therapeutic substitution Financial — Reduced promotional budgets and shorter launch windows Promotion — Reaching physicians and delivering value will be tougher Eliminating shadow accounting ~1hr/week — extra time spent on selling (Gain additional 6 days per year per rep x 400 reps =2 400 additional selling days = 12 reps) €1.2 M Reducing dispute management — saved efforts and increased sales force moral Lost opportunities become won opportunities through implementation of incentive compensation up to 5% of sales (Assume 400 Reps account for €200 M turnover) €35000 Up to €10 M
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