Incentive Compensation
Presented by: Asheesh Sharma, Senior Principal
Erik Christianson, Associate Director
WELCOME !! Today’s webinar hosts
Asheesh Sharma
Senior Principal, Axtria
Erik Christianson
Associate Director, Axtria
Chris Walls
PMSA Organizer
Peter Koniaris
PMSA Sales Planning & Operations Webinar Series
All PMSA Webinars available via
http://www.pmsa.net/conferences/webinar
• Promotion Response Modeling
9/16/2015
• Sales Force Size and Portfolio Optimization
9/30/2015
• Territory Alignments & People Placement
10/14/2015
• Targeting & Call Planning
10/28/2015
• INCENTIVE COMPENSATION
Today
Incentive Compensation is an integral part of the overall
sales planning process
High level Function
Segmentation & Promotion
Response
Sales Force Design Sales Force
Deployment Sales Activity Plan
Sales Quota, Incentive Compensation Sales Operation Measurements Brand Optimization Processes
Sales Size &
Structure Alignment Call Plan Compensation
Execution and Measurement • Segmentation & Targeting • Promotion Response Modeling • Portfolio optimization • Field Force size
and structure • Sales Territory design • Alignment maintenance • ZIP movement, Account movement & Roster management
• Call plan design • Call plan
optimization • Call plan rules • Business rule capture • Field collaboration/ adherence • Compensation plan design • Design simulation • Goal setting • Plan implementation • Plan administration • Reporting • Library of KPI • Library of reports • iPad reporting • Web reporting • Ad-hoc reporting Function
Today’s webinar has the following objectives
• Provide an overview of incentive compensation plan design
• Discuss goal setting process, methods and considerations
• Provide an overview of IC administration process
Incentive Compensation complex and exciting
Plan Complexity
Rate of Change • Product lifecycle and
ecosystem driven metrics • Pay for performance
• Deployment and sales force structure changes • Payer/channel influence • Lots of external feeds and many external data sources • Forecasts • Models and Process
• Millions of dollars paid • Thousands of payees • Millions of
transactions and sales units
Data Feeds Goals Volume
• Dynamic environment with industry structure constantly morphing • Requires constant
adjustments to ensure pay for performance
• High need for
reporting with lots of reporting generated • Need data views into
sales and competitors Visibility • Divisions, legacy systems, upstream and downstream connections Integration • Plan Management • Adjustments • Transfers and Eligibility Payee Management Improving operational efficiencies • Automated QCs • Flexible • Scalable • Maintainable Transactions • Dispute Resolution • Split • Reorgs, Disputes, Self-Service, Approvals People
A well executed IC design process builds harmony
between all key components of the compensation plan
Organization and Territories Job Design Customers and Products Performance Measures
Goals Sales Crediting
Total Target Cash
Pay Curves, Time Periods / Frequency Benchmarking
Excellence and Upside
Risk Analysis
Pay mix decisions to arrive a total target cash compensation need to be aligned
with industry benchmarking as well as financial modeling. Excellence upside forms a key input into pay mechanics. Organization strategy and compensation
guiding principles play a heavy role in blending these elements together.
Performance measures conversion into payouts with frequency needs to
have robust risk analytics based on varying performance distributions and
sales vs. forecast levels.
Data Considerations
What are the guiding principles of an effective IC Plan?
My IC Plan Should…
Drives
Accountability
• Rewards and drives accountability for financial outcomes
Tight Alignment with Job Design
• Rewards and motivates workforce on aspects of job duties
Tight Alignment with Brand Strategy
• Motivates field force to fulfill brand specific growth and volume objectives
Fiscal Responsibility
• Plan should guard against
unexpected/unintended consequences • Provides flexibility and control in managing
incentive budget
Flexibility
• Should be able to flex with evolving selling and services roles
• Ability to add/drop brand from team or individual geo portfolio
Simplicity • Easy to communicate to the field• Reasonable number of metrics Additional Considerations
• Motivation
• Disruption/Change Management • Administrative Burden
Guiding Principle Challenge
Aligned with Strategic Objectives
Ignored often in design process with micro focus on “To Do”
Simple Increased complexity
Pay for performance
Accountability and measure of influence challenged with team selling and multiple selling roles
Equity High regional variances, geo-tailored selling models Motivation Reduced motivation by
over-engineered
Fiscally responsible Challenges in forecasting, quotas, design parameters
Key Design Questions that we see coming up again and
again
Focus of Comparison: Where should the emphasis of the IC plan be placed?
Internal Competition
Vs. Team
Collaboration Differentiation: How much variance should there be between IC pay
of high and low performers?
Low / All the same
Vs. High / Very Different What is the right balance between the What and the How? Objectives &
Results
Vs. Behaviors and Competencies What is the right balance between individual, team and organization
performance? How much of the bonus will you put at each level?
Individual Vs. Company
At what level and how are targets decided? Should you have quotas at all? Where would you aim your pay mix or leverage? 75-25, 80-20, 90-10?
How frequently should payouts be made? Will this be compatible with measures and tracking ability? How will it affect cash flow of participants?
How can you ensure equity across teams/business units?
President’s Cup or Circle of Excellence design considerations: How would you handle transfers and mid year changes in design?
Plan Design Options available to IC Design Team
Pro
Con
Ranking
• Promotes competition • Easy to implement
• Compensation pool gets divided fully with no
overflow
• Undermines teamwork • Capped
• Motivation issues
Goals
• Flexibility to adjust (market conditions) • Most fair and equitable
• Incorporates potential • No cap for top performers
• Limited budget control • Administrative burden
• Communication and understanding of Goals Setting Methodology
Commission
• Simple and easy to understand
• Very motivating (especially at launch) • Can be designed to be self funded
• Tend to be biased - territory size, location • Limited budget control
• Challenges in off label promotion
Pool
• Flexible design
• Compensation pool gets divided fully with no overflow
• Very complex
• Performance to pay relationship is not known in advance
Grid
• Simple way to set up an equitable Plan when geographies are very different
• Multiple metrics
• Difficult to establish equitable levels • Limited budget control
Incentive plans need to align with business plan
objectives at each stage of the product lifecycle
Launch Growth Maturity Decline Off Patent/Generics
• Reward early sales • Encourage competency enhancement • Encourage call adherence • Commission plans • MBOs • Goals • Volume growth based plans • Market share growth based plans
• Goal based plans
• Goal based plans • Performance Index • Ranking • Performance Index • Ranking • Grids • Integrate IC plan with other brands
• Phase out from Incentive plan • CSO plans • Encourage growth of
volume/market share • Blunt competition • Start setting sales
goals
• Reward for goals • Maintain relationship • Manage IC budgets
• Control IC Budgets • Protect current business • Prepare for LOE
• Reduce IC budget allocation
• CSO driven strategy
C om mo n IC Pla n s
Today’s webinar has the following objectives
• Provide an overview of incentive compensation plan design
• Discuss goal setting process, methods and considerations
• Provide an overview of IC administration process
Goal Setting Process built upon analytical models and
approaches that are true to business context and equity
Universe and
Baseline
Identify
Potential
Models
Execute
Models and
Set Goals
Refine Goals
Payout
Mechanics
design
+
• Target, Total Dirt, Semi-Dirt • Understand territory level and customer (account) data • Research product and market, and current attainments • Build Analytical Database • Establish markers for territory potential • Correlation study • Define algorithm for scaling sales over gap period • Study data toidentify models and analytical approaches
• Test and execute model
• Perform Equity Analysis with Caps and Floors • Expected growth Analysis • Make adjustments as appropriate • Optional Goal Refinement by Managers • Business rule driven workflow • Final Goal QC • Payout curve / grid design • Payout simulator • Generate What-if calculator for field • Risk Assessment • Distribute Goals
Review forecasts to be used in Goal setting
National level forecast is parsed to compute sales team
level forecast number
National Forecast
Exclusions – Accounts, Prescriber
Forecast at Sales Force Level
Whitespace Exclusions
Allocate Goals at Territory
Level
Corporate objectives, business situation and product lifecycle
play an integral role in selection of model
Goal setting methodologies: The right one needs to
balance communication and equity
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• Market share driven approaches
• Maintenance plus potential territory contribution
Potential
Based
• Territory Contribution
• Maintenance plus standard growth or absolute growth • Trend approaches
Historical Data
Based
• Performance Frontier • Promotion Response
• Additional markers based on qualitative inputs
Composite
0 200 400 600 800 1,000 1,200Terr 1 Terr 2 Terr 3 Terr 4 Terr 5
Historical Sales Quota (Maintenance + Growth)
Fixed 10% Growth 0% 2% 4% 6% 8% 10% 12% 60% 70% 80% 90% 100% C ur rent M ar ket Shar e Gr owt h
Baseline Market Share
Performance frontier Maximum Achievable Share Untapped Potential Current Market Share Competition
Goal setting models are tested for equity and fairness
• Chosen model should be exposed to a series of diagnostics (fairness & equity) tests on historical
data to check if it is optimal
• Fairness testing is important to ascertain if there is equal opportunity for all to earn. Some of
these checks include:
• Should be a normal curve with minimal outliers
• Minimum and maximum attainment should have limited gaps
• Standard deviation should be under 10%
Attainment
distribution and
statistics
• Attainment should not be highly correlated to the parameters used
for setting goals (A high co-relation would imply bias)
Correlation checks
• Territories are divided based on multiple parameters to check for bias
within the segments. This includes:
‒ Geography level – regions / areas ‒ Absolute Volume; volume growth etc..
Segmentation
analysis
All models are exposed to a series of diagnostics
(fairness & equity) tests on historical data to arrive at
the optimal model
Test Attainment Distribution
2 4 18 41 66 73 59 33 14 4 6 2 6 24 65 131 204 263 296 310 314 320 0 10 20 30 40 50 60 70 80 <=88 % 88% - 91% 91% - 94% 94% - 96% 96% - 99% 99% - 102 % 102% - 10 4% 104% - 10 7% 107% - 11 0% 110% - 11 3% >113 % % Attainment # o f Terr it o ri es 0 50 100 150 200 250 300 350
Today’s webinar has the following objectives
• Provide an overview of incentive compensation plan design
• Discuss goal setting process, methods and considerations
• Provide an overview of IC administration process
Incentive Plan Administration requires robust process with focus
on quality
Data Month Roster
Data Month Roster
Org Data Sales Data
Automated & Analyst validations
Input Validation Report
Input Validation
Updated/Corrected Input files
Computations (payouts & Rewards) and Output Validation Updated/Corrected Output documents • Master Table • Ranking Reports • Monthly Reports • Payroll • Contests/Awards Updated/Corrected Roster (if needed) Roster Validation Report
Final Roster
Data Process & Validations Computations
Roster & Eligibility Processing
State of IC Operations in our Industry: Wide spectrum on
execution maturity
• Inaccurate reports distributed to field
• Long cycle times
• Inflexible with changes difficult to implement
• IC resources low communication effectiveness with the business • Payouts occur late or with errors • Home grown/custom system
requiring significant support • A major business change may
cause the IC process to break down
• Litigation risks
• Occasional errors in reports distributed to field
• Manageable cycle times • Menu of plan options
• Implementable with relative ease • Business has a positive view of IC
personnel
• Payouts occur on time with few errors
• Vendor sourced tool implemented and stable
• Business changes require significant effort and time
• Error free reports and payouts delivered on a consistent schedule • Cycle times minimized
• Easily configured plan options • Business views IC personnel as
partners
• Strong Alignment with support
processes (CP and Align!)
• Best in class tool in sourced/out sourced to minimize cost
• Major business changes absorbed within standard timelines
• SOX compliance with audit trails
