Ask the expert: Seven questions on…compensation

1. What is driving the need for pharma to update and improve sales force compensation schemes?
One major area is decision making around prescribing. In the UK, Sweden, and Germany, for example, you’ll see that decision making for prescribing is being taken away from the individual doctor to more of a formulary-based approach. In the UK we have the growth of primary care organisations (PCOs) and practice-based commissioning groups; in Germany the sick funds; and in Sweden the councils – each driving decisions on prescribing.

At the same time, governments in general are devolving the power of cost containment and control from national to sub-national level, so what we’re seeing is the decision making – and the power to make those decisions – taking place in a middle layer between the governments and the prescribers themselves. 

The net result is that an individual doctor may no longer have complete prescribing freedom, and that PCOs and sick funds are creating formularies which specify the drugs of choice for a particular disease. From the rep’s perspective, without the ability to influence these formulary decisions, there’s very little point in talking to doctors individually to persuade them away from what is overall a policy determined by a higher authority.

This then means that multiple reps must work at multiple levels to make sure their products reach the formulary. And there are now a vast number of people who need to be influenced from this point of view.

All of this leads to the need to review approaches to compensation. Rather than one individual rep, now the whole team is convincing the PCO, the sick fund, the nurses, doctors, practice policy makers and managers to make use of the drug. What we’re seeing is a transformation from individual one-on-one selling to team-based selling, which means compensation becomes far more complicated.

2.  How quickly is pharma responding to the need for change?
From the point of view of changing sales models, we are certainly seeing companies in the UK, Belgium, Germany and some other countries actively moving towards much more account-based or team-based selling. However, in many cases they haven’t yet caught up with their compensation systems, which continue to cover individual rep-based activities. The vast majority of companies are still experimenting – it’s a big, emotive issue to change the compensation system and the impact on the sales force can be significant with either positive results coming from highly motivated reps or negative results leading to high-turnover in the sales force.

3. How are current schemes falling short?
There are typically two main parts to compensation systems: one is the overall salary of the rep, and the other is the bonus they receive for meeting or exceeding their targets. And this is becoming far more complicated. The salary piece is usually primarily based on softer measures, but the bonus calculation is based on hard metrics; and here you’ve got a difficult situation – it's not about an individual rep's performance but a team effort. How do you put that bonus scheme together and make it fair and equitable for everybody in the team?  This is the big challenge they are facing.

4. What steps do companies have to take to change the approach to compensation?
The first thing they have to do is determine what structures they need from a sales perspective – both on a national and a regional level. There are two predominant models out there; one model is about having multiple people – certain team members being responsible for primary care organisations and other people selling to doctors and practices, etc. They work somewhat independently and not to an overall theme.

Other models are based on having an account manager for an overall region who is responsible for total performance within that region for a brand or a therapy area, and that whole team is compensated according to that performance.

The main confounding factor for the structure is the number of products in the portfolio and how many different types of teams are working in a geographical area. It is these structural decisions that are really driving changes in the approach to compensation. Most companies are piloting different things, but not many are making major changes to their sales compensation schemes at the moment.

Once the sales model has been redesigned, there needs to be a structured process for updating and rolling out a new compensation system. This involves diagnosing the current plan to capture best practices, designing and modelling the payouts of potential future plans, performing goal setting by region and finally setting up an administrative system to allow for regular reporting.

5. How can pharma improve the weighting of criteria between input activity versus output sales?
Typically what pharmaceutical companies have been doing has been based on output activity; in other words, looking at the actual sales volume in a particular geographic area and compensating the rep on the basis of that output. Now companies are also starting to look at the effort that goes in to achieving that output.

At IMS we believe that the combination is the most important thing; what level of input is being put into the sales effort, and what results are being achieved in terms of changing prescribing behavior and the sales volumes in that particular geographic area. In a recent UK study we found that for one particular brand, 30 percent of rep calls were completely wasted – they were either decreasing sales volume or not changing it at all. If you were going to measure that you might say the 30 percent input effort was very good, but when you look at the result there is little or negative impact in the market. So you need to consider both sides of the equation. However, this is not an either/or situation. Some people are saying that input systems are more important whereas others believe that output systems carry more weight. We believe it is the combination of the two that will be the main driver in the future. And as each pharma company works within a different culture, has different approaches to sales, and varying portfolios, weighting factors will need to be customised to each particular situation.

6. What schemes are being used to more accurately measure softer aspects such as strength of relationship and quality of details?
This relates to understanding what the doctors value, what they feel about call activity and how they relate to the individual reps. We’ve done studies in both the US and Spain to look at what we call these ‘customer value metrics’.  

One of the things that some companies are trying to do now is to give doctors a feedback mechanism in the form of a Blackberry or a PDA to find out how they rate the call from the sales rep – whether it was a good call, whether they learnt anything, whether they would see the rep again, and so on. What we’re finding in the research from Spain is that these actually helped to improve and increase the length of time that the doctor would spend with the rep from the average two minutes to five minutes or more.  

7. What, if any, are the differences between countries in relation to adopting innovative compensation schemes?
In our latest survey around compensation, we found that every country we studied was moving towards a more account-based sales model; but certain countries were moving much faster than others. The UK and Belgium, for example, were making a lot of headway, whereas Italy and France were being much slower to respond.  

What we also found in this latest research is that in reality most companies across Europe are at the same place in terms of thinking about their compensation schemes and adopting innovative new ones. And that’s a very interesting phenomenon. The design, deployment and tracking of compensation systems will be even more critical to success in the future more complex healthcare market.

BIO
Nev Skelton is Group Vice President, Sales Force Effectiveness at IMS Health, leading the development and marketing of the services, applications and data that help clients improve the effectiveness of their sales operations. He has extensive international pharmaceutical industry and consulting experience, with a particular focus on sales force effectiveness, supply chain management, clinical trials process re-engineering and knowledge management.