The ideal compensation plan

[cafead]

I thought I would get everyone started by posing this question: how would you design a sales force compensation plan that would be fair and equitable to all parties, while at the same time rewarding the most effective reps?

 

[Walking Eagle]

Small Pharma---base plus commission on everything sold in territory plus a bonus for increasing sales by either percentage or dollars or some combination of the two.

Big Pharma---it is never fair to use only one parameter to measure sales effort. There has to be a system for rewarding both significant increases in dollar and percentage sales as well as rewarding the rep who has already established a product and has a very high mkt share and has difficulty increasing further (Example: a friend of mine had a 60+% mkt share for an inhaled steroid for asthma because she had worked her butt off over a period of years. National mkt share was less than 5% at the time. Because she only maintained the high mkt share but did not INCREASE it, she got a shitty bonus when she should have been lavishly rewarded). To be fair, bonus would be based on a combination of dollar increase, mkt share increase, and total mkt share(or at least a provision for exceptions).

 

[Anonymous]

Small Pharma---base plus commission on everything sold in territory plus a bonus for increasing sales by either percentage or dollars or some combination of the two.

Big Pharma---it is never fair to use only one parameter to measure sales effort. There has to be a system for rewarding both significant increases in dollar and percentage sales as well as rewarding the rep who has already established a product and has a very high mkt share and has difficulty increasing further (Example: a friend of mine had a 60+% mkt share for an inhaled steroid for asthma because she had worked her butt off over a period of years. National mkt share was less than 5% at the time. Because she only maintained the high mkt share but did not INCREASE it, she got a shitty bonus when she should have been lavishly rewarded). To be fair, bonus would be based on a combination of dollar increase, mkt share increase, and total mkt share(or at least a provision for exceptions).

This problem with volume is always an issue. I have never heard of a company that handles this well. Maybe the companies don't want to have to continually reward the reps who build these huge market shares.

With the ability of computers to track and store who is responsible for the huge volumes why not come up with a program that ties sales volume to the rep who produced it. For example a rep who has built a large market share over a five year period would get a lot more compensation for that volume than a rep who came into a territory just a year ago and had not moved market share at all.

This would also require some measure to reward those who maintained high market share after another rep had built it, however. This type of program could get pretty complicated, but most pharma companies have the resources to create implement and maintain such a system fairly easily.

 

[Anonymous]

pay a percentage of the total volume of sales in that territory - A high mkt share and high volume is also a struggle to maintain, especially in the face of good competitive products and generics - those who do should be greatly rewarded.

I had a territory that produced over $3M in dollar sales (strong out of the launch gains that were held for yrs) and I made a bonus of only $40k for that yr, another territory which got a formulary win with total sales for the previous yr was about $750K, but dude made over 60K in bonus due to the mkt share increase. So, the company put almost $2.5M more in the bank from me but rewarded the dude more....it's so screwed up, told my DM it'd be better to see a $1M drop of sales just so I could bring it back a yr later...that'd profit me more and the company less.

 

[Walking Eagle]

I have worked for medium pharma, small pharma, and mega-pharma. Hands down, the best pay plan was small pharma. We got a base pay that was barely liveable, expense for motels & meals was barely adequate, and a car allowance was good and adjusted according to the Runzheimer reports. the best part was that we got commission for every dollar of sales, for every product in our catalogue, that was generated in our zip codes. The commission maxed at 10%. Annual bonus of another 2% was earned if quota was exceeded. Quota was based on an increase in sales determined as a dollar amount per product plus a possible inflation factor. Work harder, work smarter----> more money. Had they not been sold, I would still be there and would be making at least 3X what I make now.

 

[Anonymous]

I thought I would get everyone started by posing this question: how would you design a sales force compensation plan that would be fair and equitable to all parties, while at the same time rewarding the most effective reps?

Eliminate PODS so one person (maybe 2) is responsible for their own area and therefore one could see what that person does or does not achieve. When a rep is doing an outstanding job, reward them. Fire those that drastically fall short.

 

[Anonymous]

Compensation is not the problem at big pharma. A 90K base (at 7 years experience) is really good for what we do and the flexibility we have.

The bonus plan is not a problem either.

The problem are the damn quotas that are set. At a recent meeting, the senior management was happy and excited talking about how we exceeded our quota at a 100+ percent. The problem from the salesforce point of view was that only about 10 people in the country were exceeding quota.

I don't mind management hedging their bets with the field force but C'mon, that was ridiculous.

Another problem at our "big pharma" company is the sales year beginning in October and quotas being distributed to the salesforce in the following May. Only to find quota isn't being achieved.

Finally, companies need to be able to discount factors beyond rep control like hurricane Katrina. I think our company did adjust for that tragedy but I had a town in my territory get totally flooded one year. The people were in dire straits and the only two pharmacies in the area for about a year was a Wal-Mart. All the others got wiped out. Our sales dropped off the map for that year in that town.

Peace.

 

[Anonymous]

With all the data available to the companies, factors such as formulary access need to be taken into account. If product is second or third, or even fourth tier for many plans compared to the competition then that person should not be held to the same numbers as someone in a territory with better formulary placement. I am sure a map can be easily produced that tracks formulary coverage by territory.

 

[Anonymous]

Everyone should get a 50k base and expenses. Then I would pay commission on a per unit basis. For those without managed care coverage in their territory, I would pay a premium per script. For those with extensive coverage I would cut the shit out of their per script payout. This would eliminate all the bullshit and give everyone an incentive to work thier asses off.

The problem is Sr. Mgt wants to pretend that managed care doesnt make a difference in the success or failure of reps. It is funny that the reps that most often go to Presidents Club are those who have great formulary coverage.

 

[Anonymous]

In the compensation game, the objective is to minimize how much the reps get paid. There is always some reason, some data glitch... as to why you don't get all or any of your bonus. Many of the previous posts have got it right - pay for performance and then, pharma rep compensation as a % of sales remains consistent.

 

[Anonymous]

our comany did 15 billion in net revenue and all i got was 300 k

I had a territory that produced over $3M in dollar sales (strong out of the launch gains that were held for yrs) and I made a bonus of only $40k for that yr, another territory which got a formulary win with total sales for the previous yr was about $750K, but dude made over 60K in bonus due to the mkt share increase. So, the company put almost $2.5M more in the bank from me but rewarded the dude more....it's so screwed up, told my DM it'd be better to see a $1M drop of sales just so I could bring it back a yr later...that'd profit me more and the company less.[/QUOTE]

 

[Anonymous]

I've also worked for both small and large pharma and can definately say that small pharma pays much better. My company sets your quota based on an average of what you did the previous few quarters and adds a few percentage points growth in. You only compete against what you did in the past and if you have a bad quarter then you will be going against those numbers and should have a chance to make serious money with any growth. Formulary and other things don't matter because if you are in a small volume territory you are competing against your small quotas and it takes less dollars in growth to get to the percentage needed.

 

[Anonymous]

The problem that pharma companies face in determining a fair bonus structure is this- no matter how you look at it, not all territories are created equally. I am a division sales mgr in very small pharma. Reps are bonused 2/3 on market share increase and 1/3 on market share. So reps who have built up their market shares are penalized when the mkt shares hit 30% or more. Usually, they are the reps with over 2 years experience so they get pissed when their bonuses start slowing down. Also, some companies, including mine, bonus their reps on targeted physicians only, that is, they have to pick 80 targets and they are paid on what only those 80 write. There should a few categories that determine bonus: market share, market share increase, and total dollar volume of business. And the results should include any physician within the zip code of the territory who writes the product, not just the target.

 

[Anonymous]

How about just give a % of gross sales in your default zipcodes. If the company made $1 million that quarter, then you get 1%, so $10k.

OR just divide the profits equally amongst all reps. Give everyone $10k for example. It would stop the backstabbing and complaints about lucky territories.

If you are not carrying your weight based upon objective and subjective factors, then you will be replaced. Think of it as college football with everyones' efforts to win a championship ring. If you suck, you're chased off the team.

Instead, these companies make you hope your colleagues screw up so your ranking and bonus is bigger. Not very conducive to teamwork and company loyalty.

 

[Anonymous]

With all the data available to the companies, factors such as formulary access need to be taken into account. If product is second or third, or even fourth tier for many plans compared to the competition then that person should not be held to the same numbers as someone in a territory with better formulary placement. I am sure a map can be easily produced that tracks formulary coverage by territory.

I completely agree with your statement. We have reps with excellent product formulary placement and have done diddle squat in sales. While others with PA restrictions and low potential have done extremely well. So.. what is wrong with this picture. It is not all about product coverage. It is about knowing how to sell the clinical attributes of your products.

 

[Anonymous]

Don't kid yourself. Some pharmaceutical companies use compensation plans to disgruntle employees for many reasons. The worst is when they have an overabudance of highly paid tenured reps; a limited product pipeline, and products that are in the mature phase of their lifecycle. Compensation plans are then designed to drive the highly salaried sales reps to other companies so they can manage their costs. I agree that she should have been lavishly rewarded because, at the very least, she kept the competition from eating her market share. It would never happen, but I would give tenured reps more equity in the company for maintaining market share at a high level. For someone who has a product portfolio worth, say, $10,000,000 I would give them 1% of sales and 10% of any sales $ increase. For every $1M increase that represents 100K to the rep. That would give a high performing rep some incentive.

Small Pharma---base plus commission on everything sold in territory plus a bonus for increasing sales by either percentage or dollars or some combination of the two.

Big Pharma---it is never fair to use only one parameter to measure sales effort. There has to be a system for rewarding both significant increases in dollar and percentage sales as well as rewarding the rep who has already established a product and has a very high mkt share and has difficulty increasing further (Example: a friend of mine had a 60+% mkt share for an inhaled steroid for asthma because she had worked her butt off over a period of years. National mkt share was less than 5% at the time. Because she only maintained the high mkt share but did not INCREASE it, she got a shitty bonus when she should have been lavishly rewarded). To be fair, bonus would be based on a combination of dollar increase, mkt share increase, and total mkt share(or at least a provision for exceptions).