1. MedAdNewsthe magazine of pharmaceutical Business and marketing • medadnews.com • NOVEMBER 2010 • volume 29 number 11
Reprinted with permission from MED AD NEWS, November 2010
Copyright 2010 by UBM Canon LLC. All rights reserved.
Incentive compensation drives
sales force effectiveness
By Stephen Fox, global practice leader,
Sales Performance Center of Excellence,
IMS Health (imshealth.com)
F
or many years, the pharmaceutical industry has relied
heavily on sales-based measures of performance. As
companies try to improve sales force effectiveness by
deploying new commercial models and becoming more
customer-centric, new measures and metrics are required
to define key performance indicators (KPIs) and reward
people based on these management objectives. The defini-
tion and scoring of KPIs, used to define and evaluate suc-
cess in terms of progress toward long-term organizational
goals, and Management by Objectives (MBOs), a process
by which sales management sets strong objectives, is a new
approach that the industry has yet to perfect. However,
progress is being made by representatives knowing exactly
what they need to do to improve performance.
Historically, the mainstay of pharmaceutical sales perfor-
mance has been incentive compensation plans based on
either data purchases or patient consumption. Additionally,
human resource departments have managed their own
performance measures based on capabilities or corporate
values. Despite best intentions, there is usually very little at-
tention applied to these metrics. Performance is measured at
the end of the year in a very subjective way, even if rubrics
have been defined. These performance measures are usu-
ally managed separately from the field’s sales performance
measures, and integrated reports to track and combine all
the performance measures are extremely rare. Despite the
lack of timeliness and integration, incentive payments repre-
sent a large investment – often in excess of $20 million per
thousand sales representatives.
As the new age of key account management and
customer-centric selling evolves, companies are striving
for new ways to increase sales effectiveness; they need to
measure and reward performance, using metrics that are
more in line with the work being done. Two approaches are
emerging, one based on customer satisfaction and the other
based on extending MBO concepts.
Customer satisfaction is not a new concept. It has been
deployed very broadly by many companies outside of
the pharmaceutical industry, and
activities by IBM, Lexus, BT, Thomson
Reuters, and Harrah’s have been
well documented. GlaxoSmithKline’s
announcement in July 2010 about its
new compensation program for U.S.
sales representatives being based on
the service they deliver to customers
brought focus to this topic. Measur-
ing Customer Value Metrics (CVM)
dates back to 2006. As efforts were deployed to improve
customer satisfaction, the client was able to improve CVM
scores compared to the market leader, and there was a
clear correlation between CVM scores and prescribing.
When considering MBOs, two types of criteria are be-
ing deployed – one based on “what to do” and the other
based on “how to do it.” The former are usually quantitative
measures based on KPIs, while the latter are described as
“capabilities” and are based on observed behaviors.
A typical approach to developing KPIs and MBOs
involves the creation of a KPI Mapping Tree. This starts by
gathering inputs from a range of departments to understand
what performance characteristics are critical to the organiza-
tion across the business units and range of jobs. This leads to
the identification of a set of skills such as “Quality & Depth of
Knowledge,” “Sales Skills,” “Talent Management,” etc.
For each skill, a set of sub-skills is created for which KPIs
can be established, providing guidance for the MBOs, KPIs,
and analytics that are created to measure and track perfor-
mance. These primary skills can also be further described
based on the activities expected from people at different
levels in the organization – sales representatives, sales
management, and sales leadership.
When setting MBOs, it is difficult for a representative to
focus on more than five or six metrics at any one time. Also,
when setting weightings for individual metrics, anything less
than 15% becomes too small to have a significant motiva-
tional value. This is further exacerbated if MBOs are used
in conjunction with sales-based metrics where the MBO
portion of the bonus is 50% or even as small as 20% of the
total variable pay.
As new measures of field sales force performance
evolve, leading-edge companies are deploying CVMs and
MBOs that correlate with prescribing to provide representa-
tives with a framework from which they can identify those
activities and behaviors that lead to increased success.
StephenFox