reducing cost and management hassle.
When I just finalized a project helping one of my clients to establish new and fair sales objectives at territory level for the year 2020 I realized that Incentive Compensation Management (ICM) is an area which probably many Life Sciences companies would like to take to the next level. This is why I have invited Amit Jain for this interview to share his perspective on trends and challenges related to ICM. Amit has spent over 10 years of his career working in different companies as business consultant for Incentive Compensation Management and has developed his own IC software solution for Life Sciences which was launched two years ago. Karsten: What has changed in general in the last couple of years in terms of Incentive Compensation Designs for Life Sciences companies? Amit: The industry has changed in general over the period of the last few years. Focus is a lot more on rare diseases / specialty drugs which requires involvement of multiple stakeholders in the selling process. Incentive Compensation Design varies based on several factors such as customer engagement process/roles, life cycle of the drug, labour regulations, company culture, data availability, reduced market access, complex supply chains etc. Karsten: From your perspective which elements are most important when it comes to designing incentives for sales teams in Life Sciences companies today? Amit: Standard guiding principles should drive the structure and definition of an incentive plan. First and foremost, the plan should be designed in such a way that it aligns with broader corporate strategic objectives specific to individual brands. This includes identifying the right customer segments to be targeted, provoking behavior changes using appropriate performance metrics that support individual brand objectives. Secondly, the incentive plan should pay for performance. The plan should be designed to recognize top performers and pay them significantly more for their efforts as compared to below-average performers. Thirdly, the plan should provide equal earnings opportunities to all reps and should not have any inherent bias based on historical performance markers. Fourthly, the plan needs to be financially responsible and should fund itself based on overall national brand performance. Finally, the most important element is that a plan should be easy to understand. This is really important for rep alignment and subsequent motivation to go above and beyond organizational expectations. Karsten: What is fundamental for building more robust and fair incentive plans? Amit: To design a fair incentive plan several factors need to be considered. The plan should account for differential in geography size, potential of target accounts, payer dynamics across geographies, regional variations in laws etc. Every salesperson should have an equal earning opportunity. Karsten: How can incentive plans be more motivational for sales teams? Amit: For incentive plans to be motivational and engaging there are several things that can be done. Some are more design related while others are somewhat operational. Design related elements are: more frequent payouts, design of payout curves with significant upside beyond expected performance levels, kickers beyond certain national performance levels, no payout caps etc. In addition, engagement tools such as leadership boards and what-if calculators can be deployed for reps to have a better understanding of the incentive plans and visualize the incremental payouts in case of better performance. Karsten: What are important caveats to bear in mind when designing incentive plans? Amit: Ideally, standard guiding principles should drive your incentive plan design. There are different types of incentive plans - each having its individual pros and cons that influence behavior in a unique way. While selecting an incentive plan type, definitely review pros and cons in the light of broader brand objectives. For example, the company is launching a new product and may not have enough data history of its own. In that case, it is generally advisable to design a commission plan. A commission plan allows salespeople to earn a certain percentage of total sales as their payout. It also allows the company to apply different commission rates for different performance levels and create differentiation if desired. Some pros of a commission plan are:
easy to understand and communicate,
perceived to be highly rewarding,
engages reps from first prescription sold,
does not hamper collaboration
While the cons associated with commission plans are:
perceived to be unfair if territories have unbalanced potential,
may not always be fiscally responsible due to lack of built-in controls
Building blocks of a successful IC plan
Karsten: Many Life Sciences companies run their incentive compensations based on Excel sheets. What are the main limitations with that approach?
Amit: Many life sciences companies like to believe that Excel is free of cost and that managing incentives using Excel is inexpensive. Using Excel comes with a lot of hidden costs though, a fact that these companies need to understand. Excel processes are generally error prone due to complex formulae and ongoing manual intervention, difficult to control. Change audit due to data versioning issues and lack of documentation can be a cumbersome and time-consuming process. Other inherent problems are:
hard to implement data access constraints and restrictions,
data generally transferred over insecure networks,
possibility of version clashes in case of multiple stakeholders working on the file,
cumbersome to automate end-to-end process,
limited reporting options,
requires complex VBA scripting for field reporting,
difficult to implement plans that cascade data from other hierarchical levels,
companies losing valuable senior stakeholders time by relying on quality control,
much longer validation cycles instead of proactive quality assurance.
Also, historical data is distributed in multiple workbooks (at times) resulting in much longer analysis time and lower result quality due to versioning issues. Karsten: Were those the reasons why you decided to build your own incentive compensation management software? Amit: Our core team has more than 40 years of combined experience spanning across all businesses, functional and technical areas related to Incentive Compensation practice supporting some of the top global healthcare organizations which has helped us identify various challenges faced by Life Sciences clients. Primarily, these challenges are as follows:
Effort and time required to implement new incentive compensation plans or routine changes due to evolving business needs
Poor operational turnaround times in ongoing management due to data quality and calculation issues
Larger in-house or outsourced teams
These challenges effectively result in dissatisfied sales leadership while incurring a significantly higher total cost of ownership. Our IC solution was founded on the premise of solving these challenges for the industry. We provide capabilities in our comprehensive software solution where incentive management can be effectively handled by smaller project teams. Thousands of hours of operational IC experience have driven our design of the interface and solution to help our clients achieve high levels of operational efficiency while receiving great value for money. Karsten: What are important requirements for Incentive Management solutions nowadays to cover the needs of the Life Sciences industry? Amit: The requirements vary depending on the complexity of plans for individual roles and the size of the field force. In general, a good Incentive Management solution should definitely have the following features:
Intuitive and user friendly business ready interfaces which provides for faster implementation and enables quicker change management
Built-in analytics and summary reporting
Integrated quality framework to proactively identify input issues and manage outliers
Payment approval, quota refinement and other operational workflow support
Eligibility engine for management of special scenarios such as new-hire, transfer, termination etc. also allowing handling for flexible working arrangements and leaves
Fine grained access control
Comprehensive audit framework
Field reporting module with the following capabilities:
Ongoing performance progress reporting with motivational messaging
what-if calculator for ongoing engagement
Internationalization
Plan document approval and tracking
Post hoc plan health analytics
Plan modelling and simulation
Karsten: What would be your recommendations to Life Sciences companies experiencing some of the described challenges related to ICM when they would like to take their IC capabilities to the next level?
Amit: I would strongly recommend companies to evaluate hidden costs associated with their legacy systems. Commonly known negative factors widely spread in this area definitely need consideration and should be eliminated by implementing a state-of-the-art incentive compensation system:
Delay in product rollouts (yes, product rollouts have been halted/delayed due to sales compensation system incapabilities)
Overpayment & underpayment rates (results in salespeople distrusting incentive plan and spending more than desired time in shadow accounting)
Existing process inflexibility to plan changes. Solutions should always fit business needs, businesses should not compromise due to solution limitations
Frequency of late payments (incentives being a significant portion of total compensation; any delay in payment results in demotivation of salespeople)
Attrition rate (demotivation and disengagement result in higher attrition with multifold increase in administrative costs accompanied by loss in sales due to break in existing client relationships)
Dispute resolution turnaround time (disengagement due to high query resolution time)
Delayed availability of data for analytics and management reporting needs
Audit and compliance risk
Significantly higher time spent on processing and validation by senior team members which ideally should be used for value added activities and decision making
Companies should do a detailed analysis based on the above factors as that will help them evaluate real costs vs. benefits and justify investment into a standard incentive compensation solution. Implementing an automated IC solution results in reduced operating expenses and increased net selling time which boosts top line revenue. The IC solution reduces ambiguity in incentive compensation calculations and improves reliability of your plans. More importantly, an IC solution creates an environment of trust reducing attrition rates and boosting salesperson morale. It also provides flexibility to implement new ideas in a timely manner to stay up to date with the dynamic business environment. Karsten: In conclusion we can say that Life Sciences companies are confronted with many limitations of their IC legacy systems. Introducing novel solutions can reduce hidden costs significantly while increasing field force motivation and performance due to higher transparency of achievements at territory level. Thank you Amit for this valuable contribution pointing to problems of and solutions for issues related with a rather complex and important topic. I feel sure that the content of the interview once published will induce interested readers to go deeper into this matter within their field of activities particularly when questioning the quality standard of their own IC system in use. What is your experience with challenges related to Incentive Compensation Management? If you have further questions please feel free to reach out to us at info@xeleratio.com or amit.jain@aurochssoftware.com.
#incentivecompensationmanagement #icm #businessexcellence #commercialexcellence #salesforceeffectiveness #sfe
Xeleratio Consulting Ltd.
We help Life Sciences executives improve sales performance with innovative best-in-class Business Excellence tools and methodologies . Expertise in Business Excellence has been gained with over 12 years of working in different global and regional roles in the Life Sciences industry.
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