Sales Management: Pay-for-Performance

More than half of all mergers fail due to integration issues, according to Booz Allen Hamilton. The most oft-cited reasons for that failure are people-related: slow execution, culture clashes, low retention rates, and lack of communication.

Mark A. Stiffler

The key to proactively addressing these people-related failures is ensuring that all employees in the merged organization understand what is important to the combined business, how each person can contribute to its objectives, and what measures and rewards are used to recognize individual performance.

Nowhere is that more important than in pharma's sales organizations. With all the mergers and acquisitions, a company can suddenly find its sales force doubled in size, with all reps calling on the same doctors, perhaps even delivering contradictory messages about the newly merged product line—with each rep rewarded or penalized without regard to reinforcing the right sales tactics.

Instead, companies might consider using enterprise incentive management (EIM) to better manage reps' compensation, including commissions, performance-based bonuses, and other types of variable-pay plans.

EIM solutions clearly align the sales strategy with incentives by eliminating the various and confusing implementation and management constraints. In doing that, EIM also

» enhances morale and trust by reducing errors and inaccurate payments

» increases productivity by eliminating "shadow accounting" done by individuals because they don't trust the accuracy of plan results

» improves decision-making by sharpening visibility into plan performance

» increases profitability by reducing administrative and IT costs.

Incentives are an important way for a company to communicate its priorities to its sales force, and to make clear that sales reps can earn more money by supporting the right behaviors.

Wyeth and Amersham Biosciences are two companies that used EIM to align reps' rewards with sales strategies after undergoing mergers.

Case Study: Wyeth

In the early 1990s, Wyeth was using an internally developed, mainframe-based incentive-compensation management system. Although this system once served Wyeth's needs, it became increasingly difficult to maintain when Wyeth merged with American Cyanamid in 1994, doubling its sales force.

The two companies had different methods for managing employee performance and administering incentive compensation plans. After the merger, Wyeth found itself with dozens of incentive plans—with each plan working differently based on the products reps sold and the part of the organization in which they worked—for several thousand employees. This complexity meant the field force didn't have a clear understanding of how its performance affected its incentive payments.

Wyeth knew it needed a new system to manage the administration of reps' diverse compensation needs in the newly merged company, and to provide sales performance reporting. It considered a range of possible EIM solutions, including custom software applications to be used in-house, third-party software, and complete outsourcing of the incentive-compensation management process. The company ultimately decided to implement an EIM solution as an outsourced service, relying on the solution provider to administer the day-to-day details so Wyeth's staff could concentrate on more strategic issues.

The outsourced service solution transformed the company's incentive-compensation management process. Specific budgets for incentive compensation programs were created and spending was tracked, enabling the company to manage the budget closely and ensure equality across different groups. That allowed managers to understand whom were the most effective reps, and what were the most effective behaviors. It also ensured that Wyeth could forecast its sales incentive expenses accurately, and manage the budget if a particular product proved more popular than predicted. Wyeth also was able to improve on other measures, such as reducing by a third the time it took to mail bonus reports to reps.

Case Study: Amersham Biosciences

When Amersham International and Pharmacia merged life sciences business in 1997 to create Amersham Biosciences (now a division of GE Healthcare), Amersham had been acquiring two to three companies per year. This acquisition spree opened a Pandora's box of diverse sales cultures and approaches to pay-for-performance.

The company was managing its incentive compensation plans with four different software tools—Microsoft Excel, Lotus Notes, Oracle, and Business Objects. However, these homegrown systems were labor-intensive and not adaptable to change. After the merger, the sales operation staff struggled just to meet the payroll deadline, and wasn't able to analyze plan performance. It often took six weeks to calculate payments and four weeks to correct errors, so the sales operations department spent 10 weeks out of every quarter paying incentives.

It often was far into the next quarter before Amersham reps gained a clear picture of their performance. The delay in computing payments and the poor reporting meant sales reps didn't understand why they were getting paid and, consequently, what their priorities should be. Feedback from the field showed that confidence in the existing incentive-compensation structure and the morale of the sales force was at an all-time low. Management realized it was time to bring consistency and simplicity to the incentive-compensation plans.

Using an EIM provider, Amersham delivered the first bonus reports to the sales reps in February of 2002. By year- end, there were no more underpayment errors, saving four weeks of headaches for the reps and the sales operations group. (The reduction in errors indicated that overpayments also had been reduced, saving the company money.) Accurate and complete incentive payments were being made within six weeks of the quarter's close, a much more respectable performance than the 10 weeks it used to take.

There also was a 20-percent drop in rep turnover. Although that might not directly correspond to adoption of EIM, the system did enable the company to respond more quickly to market changes and new product launches, and therefore, offer reps more opportunities.

"Amersham's sales compensation system had not kept pace with its increasingly specialized sales force, growing product line, and complex compensation programs," says Dan Eldridge, manager of commercial systems at GE Healthcare Biosciences. "Sales reps had lost confidence in the incentive-compensation and sales-reporting systems. Implementing EIM proved to be a life-saving move."

Today, GE Healthcare Biosciences consistently makes its quarterly incentive payments within four weeks of the quarter close. As a result, surveys of the field force show that GE Healthcare enjoys its highest level of sales rep confidence in sales and incentive-compensation reports in more than five years.

Mark A. Stiffler is president and CEO of Synygy. He can be reached at stiffler@synygy.com

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