Commissions or Quotas? Making the Right Choices for Oncology Reps’ Incentive Compensation

Mike Martin, Principal

The most common way and probably the typical approach is an escalating pay curve, where, for the first 10 units, you would receive “x” dollars per unit. The next 10, it doubles. And then, the next 10 it triples. And it’s very motivating—reps are encouraged to continue to sell.

Now, the one drawback of that type of plan is it’s highly dependent on volume, of course. And what we found is your volume is correlated to either your prior volume or your potential. So if there’s any imbalances in those areas, then you already know who’s going to earn the most.

To combat that, what some companies do is they actually create a custom commission rate by territory. So in these cases, they know ahead of time some marker for potential, and they’re able to adjust and say that one territory gets “x” dollar commission rate, another territory gets “2x” commission rate, and another territory gets “3x.”

I can imagine in the future that non-sales objectives will become more important. So as we’re really driving towards what makes one individual customer’s experience more fulfilling than another’s, it could actually be different promotions, [or] different activities that we have to bring to them.

And then, additionally, as we start to really drive towards our goals as a company, moving away from commissions is very valuable. We spend a lot of time talking about commissions, but quotas are also a very common approach. And as companies become more and more comfortable with not only their own sales data but also potential data [and] competitor data, we’ll probably see the rising in quota plans as well.