Blend ‘fluid’ territory alignment with ‘frozen’ one to create ‘Goldilocks’ compensation plan for sales reps
By Cecile Marbella, associate manager, and Steve Trokenheim, partner, at Beghou Consulting
Paying field sales representatives is harder than it sounds. Companies need to rigorously analyze data and thoughtfully develop payout structures that help sales reps maximize earning potential and sales results. If a company’s compensation plan fails to properly motivate or adequately reward sales reps, they may underperform or move to a competitor.
At the same time, a compensation plan that generates payouts that are too high may hurt a pharma company’s bottom line. So, a pharma company needs its incentive compensation plan to be “just right.” In its meandering search for “just right,” the company looks for an incentive compensation plan that appropriately rewards its sales force with fair compensation based on accurate quotas. Met without success, headquarters may ask in frustration: “Goldilocks, where are you?!”
Commercial teams often set quotas based on the historical prescribing behavior of physicians in a particular territory. Doing so, however, fails to account for a wide mix of scenarios that may unfairly affect a rep’s ability to succeed:
• What if physicians assigned to a rep’s territory no longer practice in that territory?
• What if physicians assigned to a rep’s territory also practice in another territory?
• What if a physician leaves a rep’s territory, mid-cycle?
• What if a new physician enters a rep’s territory, but isn’t counted as that rep’s customer?
Many pharma companies use a single alignment to measure sales force performance against target goals during the current quarter and implement changes for future quarters. When headquarters updates this same alignment, however, it can make it difficult to determine accurate sales force payouts. Headquarters may blur the line between current and future alignments and mistakenly base a current quarter’s payout on a future quarter’s alignment.
‘Fixed’ vs. ‘Fluid’
That’s why we recommend creating and managing two alignments: A fixed alignment (i.e., frozen) determines sales force payouts from the current quarter; a fluid alignment accommodates changes in the marketplace, then sets future goals against up-to-date targets.
Pharma headquarters should implement this second, fluid alignment with input from those who best know the territories – the sales reps. After all, sales reps have years of experience working with these physicians and know about office changes and practice mergers well before the aggregated data reveals anything. Incorporating this feedback leads to more accurate and up-to-date alignments and quotas, and results in a more equitable incentive compensation payout.
Equipping the sales force to review and propose updates to customer lists also gives reps a sense of ownership in their roles and strengthens their trust in headquarters. When headquarters invites the sales force to review a territory, it asks reps to confirm (or provide) the most current, up-to-date information. Headquarters should still maintain control of the territory design by requiring sales management to review and approve each proposed change from the sales force. After all the changes are approved, the new alignment becomes the frozen alignment for the next quarter, which the commercial team then uses to set more accurate goals.
Though changes inside a sales territory can be frequent and dramatic, pharma companies are reluctant to make those adjustments “on the fly.” That’s chiefly because the information is difficult to collect and track. We usually see the sales force contact headquarters regarding potential changes to their assigned territories through every communication method possible: in-person, phone, email or (haphazardly produced) spreadsheets. It can be challenging for managers to process requests from dozens of sales reps and incorporate these updates into the current (single) alignment. Further, there is no ideal time to make the requested changes. If a pharma company makes changes mid-quarter, it impacts the sales force’s current goals. If a company waits until the end of the quarter, the sales force’s incoming goals are already set without these changes. This unclear process for changing alignments can cause the sales force’s requests to become lost or implemented incorrectly.
Manage multiple alignments with technology
With rapid improvements in technology and data analysis, however, pharma companies can track both frozen and fluid alignments. Beghou’s Mainsail Frozen Alignment Manager, for example, can help pharma companies track two territory alignments – one “frozen” and the second “fluid” to accommodate changes in the marketplace – and streamline proposed adjustments to the second alignment. This tool makes it easy for the sales force to review their territories and assigned list of physicians, then recommend modifications to the second alignment. In turn, regional managers can simply login and approve or reject these proposed changes. Headquarters oversees all requests and collaborates with the regional manager on any changes, as needed, especially those involving high-profile physicians. Regional managers can access the status of the sales force’s requests and view any pending requests or communication.
It takes two
Other than the product, the sales force is a pharma company’s biggest commercial asset – but it’s also its most complicated to manage. Pharma companies looking to develop a motivating incentive compensation plan should start by creating a territory alignment and setting goals. The second territory alignment begins as a repeat of the initial alignment used to make payouts on the current quarter. Then, pharma companies should establish processes to accommodate proposed sales force changes to the second alignment. Finally, regional managers and headquarters should review all proposed modifications to the alignment and ensure the incentive compensation plan is fair and motivating. Optimizing the plan with two alignments – and implementing a proven, streamlined approval process – helps ensure more accurate goals and fairer incentive compensation payouts. Ultimately, using two alignments helps headquarters build a trusting relationship with the sales force, increases sales force performance and can even result in higher sales.
The dual approach to alignments – one frozen, one fluid – is key for a pharma company to achieve a balanced incentive compensation plan that attracts, rewards and retains reps. This approach will help pharma companies create and revise over time an incentive compensation plan that is “not too hot, and not too cold.”
