Varun Chodha wrote this article.
Life sciences companies have come a long way since the days when they relied on sales reps building relationships with healthcare providers. As the industry moves from an individual, relationship-heavy selling model to a value-based model, today’s sales reps must engage non-clinical stakeholders within hospitals and IDNs in addition to doctors and medical staff. It’s no longer just about discussing the latest features and charging a premium. Now, companies are being challenged to provide better outcomes at lower costs. On top of all this, achieving growth is harder than ever in an increasingly saturated market.
Every year, we conduct the ZS Incentives Practice Research Study among U.S. medtech companies, and we’ve seen that companies keep moving toward more sophisticated compensation practices, leverage larger volumes of data from more sources, and implement more technology to process incentives. Here are our top findings from this year’s study:
- More and more companies are adopting sophisticated incentive methods. Our findings show that 80% of respondents measure the performance of their salespeople against using sophisticated quota-setting methods such as a weighted index and time-series trending. Most companies rely on direct data and input from managers to establish the potential of each territory, and 90% of respondents rely on refinements sent from the field to fine-tune their quotas. However, this was not always the case, especially for capital-intensive companies, which have traditionally paid flat commission rates from “dollar one.” The orthopedic sales model is unique in remaining rep-heavy and dominated by the flat commission rates model. Many companies in this sector have started to use quota or growth targets to encourage growth, but their full migration to a pure quota-based model does not look as though it will happen anytime soon. Trips, contests and SPIFFs have been used as incentives for many years, but this year we saw a 50% increase in the use of long-term incentive grants, intended to promote consistent longer-term performance and loyalty. Also, non-cash rewards, such as points to spend on merchandise, are increasingly leveraged to promote longer-term, sustainable performance and loyalty.
- With advancements in technology and evolving needs, companies continue to move away from spreadsheets. Around two-thirds of our respondents use a centralized platform or software to administer their incentive plans. Most have abandoned Excel and custom-built solutions. The most sought-after features of such software are speed and field-facing user interfaces. According to our study, 10% of companies outsource their incentive administration processes. These advances have been accompanied by an improvement in satisfaction with companies’ administration systems, from 4.5 to 6 (on a scale of 7).
While companies continue to improve their compensation practices, they also need to improve how they administer them. Fairness and accuracy have topped the list of challenges for many years, but this year’s study showed a shift toward plan administration and data-related challenges. This raises a very critical question: How can companies stay ahead of the curve and be able to advance their organization to support their ever-evolving business models?
There’s no single answer to this, but the most important thing that companies that stay ahead do effectively is that they think of their commercial organization (including compensation) as a profit center and not a cost center. They also quantify its ROI and continually remind leadership of its value. To get there, companies need to leverage advanced data analytics techniques to inform day-to-day decisions. Believe it or not, medtech companies have a plethora of data at their disposal. They just need to know how to leverage it.
Companies should also take an integrative approach. Think of this as a transformational journey and invest in technology and the people and processes that support the business. A lot of attention needs to be given to change management and communicating the “why” behind the journey to be able to bring everyone along. Companies that can achieve these milestones will set themselves on the path to successfully evolving their sales compensation models.