Crafting Highly Effective Incentive Compensation Plans for Your Sales Force

A fair and rewarding incentive compensation plan is an essential component of any successful product launch. Although both emerging and established pharma commercial teams strive to engage their sales forces, emerging pharma companies must often tackle incentive compensation challenges with limited resources and reporting capabilities. These nascent enterprises—smaller companies that manufacture orphan and specialty pharma products—must take extra precautions to ensure their sales forces remain engaged through the ups and downs that nearly always accompany these types of product launches.

Since many emerging pharma companies only market a small number of products, their commercial teams typically design a compensation plan tailored to each launch. With this extra flexibility that’s rarely available inside large pharma companies marketing several products, commercial teams should strive for compensation plans that are tailored to the product’s unique strategic considerations and fair to all different types of sales territories, with opportunities for success clearly defined. They must work overtime to clearly communicate all elements of the plan and maintain the trust and confidence of the sales force.

Begin with a Customized, Flexible Plan

While established pharma’s commercial teams must ensure plans pay fairly across various brands and fit into the company’s IT reporting system, emerging pharma can create a customized incentive compensation plan that allows for flexibility using a product’s forecast, sales force structure, customer segments, and variations in market demand (seasonality, buying patterns, etc.).

Of course, gathering data to forecast sales for a new therapy that treats a previously unserved market is easier said than done. To avoid over- or underpaying a majority of the sales force, commercial teams should consider compensation plans with payments that can escalate based on both individual and company-wide performance. If a group of territories is underperforming shortly after launch, potentially due to factors out of their control, the commercial team can host a one-time contest to boost morale.

Six months after launch, if the target list of physicians is solid and the product proves effective—but overall sales miss the mark or certain territories don’t perform as expected—the commercial team needs to re-evaluate and prepare to pivot from its current incentive compensation plan. Depending on the cause of the product’s underperformance, the commercial team could change the plan structure or reconfigure the territory alignment. Commercial teams must then clearly present to the sales force the plan’s new earning potential and provide examples of how to succeed.

Evaluate Your Plan’s Effectiveness

Commercial teams at established companies subscribe to ongoing reports that monitor their incentive compensation plans to ensure they remain fair, balanced, and motivational. The reports also allow companies to quickly address any potential issues.

While they may not have the resources for robust reporting, emerging pharma companies should selectively invest in analytics that ensure the plan will be successful. Commercial teams would do well to test various scenarios, such as how to handle different levels of balance in territory performance (or lack thereof). Additionally, the commercial team should provide the sales force with calculators to determine how much they must sell to earn their desired compensation.

Emerging pharma companies often set up an incentive compensation plan far in advance of launch and then divert their attention to other activities. By investing in internal resources or an outside expert focused on incentive compensation, emerging pharma companies can better monitor the plan, make changes as needed and further drive the sales force.

Adopt New Data, Technology for Better Plans

As new types of patient data, such as electronic health records and claims data, become more accurate and widely available, pharma companies will begin to use this data to uncover important insights during launch planning, including incentive compensation plan design. Emerging pharma companies can also use predictive analytics and machine learning to ensure they design the incentive compensation plan with a more complete understanding of the business conditions in each territory.

For example, commercial teams will have many new data assets to better predict patient demand within territories and know more about the available patient population than ever before. Teams can then use this information to help design more accurate incentive compensation plan parameters, which can result in a fairer and more motivating plan. That same data and technology will help commercial teams more accurately simulate future outcomes and test how the plan will perform, minimizing post-launch surprises.

Pharma companies that fail to prioritize their incentive compensation plans risk lower sales and high turnover. Companies must dedicate resources to research and analytics that can develop their plan, monitor its effectiveness, and adjust as needed. Investing in a fair and motivating incentive compensation plan helps emerging pharma companies establish strong sales forces and set themselves up for success.

  • Dan Schulman

    Dan Schulman is an associate partner at Beghou Consulting, a pharmaceutical sales and marketing consulting firm. An industry veteran with more than 15 years of experience, he has extensive experience working with clients on incentive compensation plan design and management, sales force size and structure, business intelligence reporting, and data management. Dan holds bachelor’s degrees in both sociology and mathematical methods in the social sciences from Northwestern University. He leads the firm’s San Francisco office.


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