Building the Fundamentals: Why Bold Sales Incentive Schemes
Need Efficient Administration
Russell Schubert and Andrea Traverso • Contributing Writers
It appears that few medical products companies are very satisfied with the administration of their incentive
schemes for salespeople.
This finding from the 2015 Incentives
Practices Research study for the medical
products industry, carried out recently by
ZS Associates, should sound a warning.
Only by refining administration can companies be confident in smoothly implementing the bold incentive schemes which
are gaining in popularity as a means of
maintaining growth and retaining the services of key salespeople, according to the
study’s findings. A flexible form of administration also enables negative issues to be
identified, analyzed and resolved, and any
necessary scheme changes to be incorporated without undue disruption.
Selecting the most appropriate incentive compensation management (ICM) system will therefore provide an indispensable
foundation upon which the broader sales
strategy can flourish.
To appreciate why it is so important that
medical products companies get their incentive administration right, it is key to understand other key findings of the ZS study.
The commercial environment has become more buoyant for medical products
companies, with those surveyed reporting
a median revenue increase of 7. 5 percent
from the previous year. As they start to feel
more confident, and the years of caution
following the 2007-2008 financial crisis
fade from memory, companies are using incentive plans more aggressively to engage
the sales force and thereby perpetuate this
We also have observed that our clients
have become increasingly concerned about
retention, as rivals attempt to poach good
salespeople in order to take advantage of
the growth opportunities. The cost of turn-
over is high. Replacing each salesperson,
whether through hiring and training a re-
placement or through lost revenue while
the role is vacant, could amount to hun-
dreds of thousands of dollars.
To retain their excellent performers and
sustain their commitment, companies are
therefore paying their top 10 percent an average multiple of 2.3 times the total amount
that can be paid for a bonus this year, up
from 1.9 times the previous year. A quarter
of those companies that participated in the
survey reported that they now pay as much
as three times the target incentive to their
top performers. A comfortable majority of
companies do not impose any cap on payouts—almost two out of three companies
(65 percent), for example, impose no cap
on payouts for territory or account managers. Medical products companies seem to be
saying: You don’t need to go anywhere else
to fulfill your ambitions, you have the opportunity to earn what you want right here.
But it is by no means just the cream of the
salesforce that is benefitting from a renewed
focus on salesperson retention. Managers
increasingly are rewarded for the average
performance of their direct reports. In this
way, managers are incentivized not just to
focus on one or two stars, but also to ensure
consistent performance from the rank and
file within the sales team.
Companies are feeling so sufficiently
confident about their prospects that they are
setting more aggressive quotas. A growing
number of firms now set quotas that exceed
national sales objectives, and payouts are
triggered at a higher percentage of the quota
than in the previous year. Salespeople are
being encouraged to stretch themselves to
achieve what are now higher rewards, and
by doing so, secure their company’s continued growth.
However, our survey also revealed a potential obstacle to the smooth implementation
of this incentives strategy. A significant num-