Redesigning An Incentive Compensation Plan to Attract, Motivate and Retain Sales Personal

Introduction

Pharmaceutical companies that cater to the Rare Disease market face ongoing challenges of establishing and maintaining an effective sales force. The unique aspects of this market segment including small population base, complex decision processes and uneven sales cycles create a challenging environment for keeping sales teams engaged and motivated. This case study examines how an effective compensation plan for a bio-pharmaceutical company attracted and retained a high performing sales team which resulted in strong sales growth aligned to the firm’s expectations.

Background

A bio-pharma company had developed its Incentive Compensation (IC) plan for the sales team representing its biologic used in the treatment of a rare disease with less than 500 patients in the US. About 70% of their plan and payout was structured around achieving a division goal with additional commissions on top of 100% attainment on four key metrics (new patients, active patients, start forms and units) plus 30% on MBO, however, results under this plan were significantly missing corporate targets. Management turned to KMK to analyze the situation and redesign an IC plan that would drive the desired performance. As a first step in this assignment, KMK developed a survey of 17 regional business managers (RBM) and 3 district sales directors (DSD) to determine how the team viewed their current IC plan and what might provide better motivation and performance.

Results from the KMK survey were not surprising, reflecting the poor morale among the RBMs and their lack luster performance. IC plan-driven motivation was essentially lacking. Indeed, only 20% of those responding to the survey felt they were compensated fairly, and the most common complaint was 100% goal attainment did not equal 100% of their pay out. This sentiment was actually a glaring indication that the RBMs did not understand how their current plan worked. Probing further, KMK discovered that RBMs found their greatest impact to be on Start Forms and HIS Referrals and that these metrics had very little impact on patients being treated with and remaining on the biologic.

In terms of their compensation plan, the RBMs set low expectations for Start Forms goals, despite this being one of the areas where they felt that sales activity had the most influence. 71% of respondents expressed that having an individual unit portion as part of an IC plan was fair, despite a lack of control over super-user performance, and 93% of the RBMs preferred an individual unit plan over a divisional unit plan. The majority of the team felt that MBOs should not be used to determine compensation levels.

Taking all of these findings into consideration, KMK reported the key takeaways on the survey were

Focus should be on individual unit plan over a divisional unit plan to keep motivation high The current goal of growth over a six-month average was not well understood and appeared to be demotivating the team Start Forms continually played a large part in the survey comments and RBMs felt this metric was the area a sales team member could influence the most The current plan with 4 different metrics plus MBO was much too complex and lacked clear focus on corporate strategy of revenue and new patient coverage

KMK’S PLAN

With these results serving as background, the KMK team recommended the following IC plan that would reward and pay RBMs based on their individual performance rather than team performance. Additionally, the plan should shift focus to areas that would make the most impact, resulting in RBMs being compensated on what they were able to change.

The key components of the KMK IC plan were unit sales and patient numbers with the compensation package based on:

• Removing MBO completely
• Setting individual unit goals instead of division goals, while also adding a national multiplier to calibrate for national performance
• Providing 70% focus on units to emphasize driving revenue
• Establishing the remaining 30% focus on new patients to increase patient coverage and leverage where RBMs could make the most impact
• Conducting simulations on fairness testing during goal setting to validate all territories and ensure they had equalized earning opportunities regardless of territory size and volume

These goals are in sharp contrast to the Start Forms, New Patients, HIS Active Patients and Unit Performance measures that were used to set the goals and award performance in the prior plan. The kickers of the previous plan were replaced with an increase in base plan target funding, and instead of a 100+Unit Club, the KMK plan applied a corporate performance multiplier on top of a payout from a quota-based unit performance.

To ensure all RBMs and DSDs had a comprehensive understanding of the plan changes and where their earning opportunities were, KMK prepared visualized training materials for a new IC plan roll-out workshop. The new IC plan was a huge success and welcomed by the corporate and sales team by delivering the following:

• Much better aligned with the corporate goal to increase revenue while rewarding for new patient growth
• Highly motivating and rewarding for individual performance
• Simple to understand and calculate
• Fair with an equal upside earning potential for everyone
• Fiscally responsible and tied to national performance

The resulting KMK-designed IC plan was aligned with the company’s corporate strategy to increase unit sales and revenue while rewarding RBMs for growth. Following a two-year downward trend, brand sales saw a momentum shift and revenue gain in the first quarter with the new IC plan in place. Additionally, the plan offered structure to attract, retain and motivate sales employees by providing a compensation plan that is simple to understand and calculate, and was fair. Being aligned to a short-term forecast, performance was reasonable and attainable, and offered upside earning potential for growth equitably.