Goaling & Compensation Plan Design
Sales people and sales executives complain about their organizations' incentive compensation plans. Though we have heard a myriad of different concerns expressed, there are really two core problems:
- Plans that do not motivate all sales people at all times
- Plans that end up costing substantially more than they were supposed to — especially when overall sales results were at or below budgeted levels
So the incentive compensation challenge is to maximize motivating power to the sales person, while also maintaining fiscal responsibility to the Company.
SELECTING PLAN DESIGN TO MAXIMIZE MOTIVATING POWER
There are many different plan types or formulae from which to choose. Four commonly used plan payout formulae are shown below:
The challenge is to select the formula that best matches your sales challenges. Click here to download a Sales Compensation and Goaling Reference Card which describes different payout approaches and situations when they may be used effectively.
GOALING: KEY TO SUCCESS OR FAILURE
Incentive plans that are otherwise well designed are de-motivating if sales goals are not fair. They can lead to undeserved, unsustainable payouts on the one hand, and costly turnover on the other. The problem is exacerbated because both of these problems can occur at the same time.
Potential models can be used to evaluate the level of attainable potential that resides in each territory, enabling the management team to establish "same-stretch" sales goals for each sales person. These models are built using physician-level information, so the results can initially be used to improve targeting and promotional effectiveness. Physician value is then rolled up to the territory level, ensuring goals are both fair and fully aligned with call plans, sampling strategy, and other resource allocation.
Managed Care is often the most important factor determining the portion of the unconstrained potential that can be realized within the short-time plan timeframe. While many organizations recognize managed care in targeting algorithms, we have seen few cases where managed care position and control are both explicitly considered in goaling. Click here to learn more about Managed Care metrics, and how they may be used to improve contracting and other aspects of sales effectiveness.
After goals are initially established, they can be tested for fairness using recent actual prescribing data. The "what-if" attainment results must confirm that no set of territories (e.g., large vs. small base sales, high vs. low additional potential, high managed care control vs. low managed care control) is advantaged or disadvantaged based on the goals they are given. Click here to see modified goaling case studies.
USE FINANCIAL SIMULATION TO MAINTAIN FISCAL RESPONSIBILITY
The total plan cost, or more specifically, the likely total cost range often requires use of simulation techniques. This is especially true for plans with accelerated payouts, since attainment may vary widely across sales people, and the overage payout to those exceeding goal substantially exceeds the "savings" from those who fall short.
Simulations can be used to establish incentive compensation budgets that are synchronized with the underlying plan design, and ensure that sales generated beyond national budgeted levels retain desired profitability, even after accelerated payouts. Click here to download Simulation Case Illustrations.