Quota Based Systems Replacing Traditional Commission Plans
E. Norriton, Penn., September 16, 2016. Incentive Compensation (IC) plans are changing significantly as the industry changes, according to TGaS® Advisors’ 6th Annual Incentive Compensation Landscape Survey. The benchmarking and advisory services firm surveyed IC leaders from 28 life sciences organizations, including 13 large and mid tier and 15 emerging companies. The newly released survey covers plan mechanics, adjustments, contests and President’s Club, governance and future challenges.
Product launch incentive plans was one of the areas showing the greatest change, according to James Castello, who heads the TGaS Incentive Compensation Practice. For example, the 2016 study shows that launch plans are increasingly likely to be based on quotas as opposed to traditional commission plans. Of 69 product launches reported by the TGaS survey network, nearly half, or 46%, used quotas as opposed to 19% in 2015. This may be reflective of companies launching into markets where they have an established presence, enabling brand managers to forecast with greater confidence.
TGaS also found that launch plans have been simplified from prior years, with 85% utilizing a single metric vs 44% in 2015. This is not surprising, according to Castello, because it is in line with industry best practices in this and other areas. In addition, he notes, a single metric creates focus and clarifies objectives for sales representatives.
Incentive earnings distributions also appear more compressed than in 2015. Companies are reporting changes in minimum and maximum earnings in compensation plans. In 2015, 43% of companies indicated that bottom performing reps earned $0 vs only 27% of companies in 2016. In addition, in 2015 67% of companies indicated that top earners garnered more than 200% of target earnings. In 2016 that number had dropped to 59%. Commenting on these findings, Castello cautions that lowering the earnings threshold can alienate top performers. He advises that performance spread should accurately reflect the company’s “pay for performance” culture.
For more information, contact James Castello, jcastello@tgas.com.
About TGaS® Advisors
TGaS Advisors is the leading benchmarking and advisory services firm for commercial organizations in the life sciences industry. With a roster of top 50, emerging and precommercial life sciences companies, TGaS provides robust comparative intelligence and collaborative network membership services. The team includes more than 60 experienced professionals, most with senior level experience in the life sciences and related industries. To learn more, visit www.tgas.com.
