Pushing the Boundaries: How Confident Companies Are Boosting Incentives to Drive Growth

Chad Albrecht, Russell Schubert

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Medical equipment companies report significant growth for 2014, and they are looking to use incentive plans more assertively to continue and even accelerate this trend. That’s the main finding from the 2015 Incentive Practices Research study for the medical products industry, carried out by ZS Associates.

Several results from our survey point to this conclusion, including:

  • Budgets for incentive payments have gone up by an average of 3%.
  • Top performers are being more generously rewarded. Companies plan to pay the top 10% an average multiple of 2.3 times the target incentive this year, an increase from 1.9 in the previous year.
  • Realizing the need to get all salespeople on board in the drive for growth, companies are by no means focusing all their attention on top performers. Managers are being increasingly rewarded for the average performance of their direct reports, indicating that less stellar, but nevertheless invaluable, sales team members are being well looked after too. 

To stimulate outstanding performance, more aggressive quotas are also being set:

  • More companies are setting quotas that exceed national sales objectives
  • Payouts are triggered at a higher percentage of the quota than in the previous year

The message from companies to their sales teams is clear. You will have to perform to the highest standard to get your rewards, but if you do, we certainly won’t hold back in paying you what you deserve. Indeed, a comfortable majority of companies impose no cap on payouts.

To give themselves confidence that their quotas are accurate and effective, more than four in five companies allow for quota refinements that respond to specific market requirements. It may also be that the use of data on sales potential – the share of a total market that the organization can reasonably expect to capture – is also helping to facilitate such a positive incentive program. All companies now use potential data, whereas a significant number didn’t last year. Consequently, they will feel more inclined to distribute generous rewards in the full knowledge that they are founded on fair but challenging quotas reached through using more sophisticated methods.

Another major survey finding is that the administration of incentive compensation leaves much room for improvement. Few companies are very satisfied with their administration, and the number dissatisfied is growing. An increasing reliance on spreadsheets and databases, rather than software, runs alongside this mild sense of dissatisfaction.

These less sophisticated administration methods may explain some other survey results. It could be that progress is being held back. A significant number of companies don’t have a high level of confidence in their ability to implement new plan designs with their current systems. Moreover, this year’s sample of companies are allocating more full-time equivalent (FTE) employees to what is now more labor-intensive administration, potentially raising costs.

Full details of all these survey results can be found in our report. We also set out three actions which we believe medical equipment companies need to undertake in the light of the report findings.

About the Experts

Chad Albrecht is a ZS Principal based in Evanston, Ill. He leads ZS’s B2B Sales Compensation practice. Chad has helped numerous clients create and implement motivational sales incentive plans and set fair and challenging sales quotas. His clients include companies in the medical device, pharmaceutical, high tech, manufacturing and business services industries.

Russell Schubert, a manager in ZS’s Evanston, Ill. office, has worked with numerous medical device, products and services companies to find solutions for a variety of issues related to incentive compensation, helping to design and implement incentive compensation plans and quota-setting processes.