Competing Against Big Box Stores - PMSA€¢ Easy to communicate to the field • Reasonable number of metrics Additional Considerations • Motivation • Disruption/Change Management

Incentive Compensation

Presented by: Asheesh Sharma, Senior Principal

Erik Christianson, Associate Director

Peter Koniaris, Associate DirectorNovember 11, 2015

WELCOME !! Today’s webinar hosts

Asheesh SharmaSenior Principal, Axtria

Erik ChristiansonAssociate Director, Axtria

Chris WallsPMSA Organizer

Peter KoniarisAssociate Director, Axtria

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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

All Webinars at 12:00 noon Eastern time

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http://www.pmsa.net/conferences/webinar

Incentive Compensation is an integral part of the overall sales planning process

High level Function

Segmentation & Promotion Response

Sales Force DesignSales Force

DeploymentSales Activity Plan

Sales Quota, Incentive

Compensation

Sales Operation Measurements

Brand Optimization

Processes

Sales Size & Structure

Alignment Call Plan CompensationExecution 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

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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

• Address your questions

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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

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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

Firm’s Compensation Philosophy

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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

EquityHigh regional variances, geo-tailored selling models

MotivationReduced motivation by over-engineered

Fiscally responsibleChallenges in forecasting, quotas, design parameters

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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?

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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

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Incentive plans need to align with business plan objectives at each stage of the product lifecycle

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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

Co

mm

on

IC P

lan

s






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Goal Setting Process built upon analytical models and approaches that are true to business context and equity

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Universe and Baseline

Identify Potential Models

Execute Models and

Set GoalsRefine Goals

PayoutMechanics

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 to identify 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 settingEstablish forecast that should be allocated to the field

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

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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

Trad

eo

ffs

bet

we

en

co

mp

lexi

ty a

nd

fai

rne

ss

• Market share driven approaches

• Maintenance plus potential territory contribution

PotentialBased

• 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

1,200

Terr 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%

Cu

rren

t M

arke

t Sh

are

Gro

wth

Baseline Market Share

Performance frontier

Maximum Achievable Share

Untapped Potential

Current Market Share Competition

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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%

Attainmentdistribution 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

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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

6673

59

33

14

4 6

2 624

65

131

204

263296 310 314 320

0

10

20

30

40

50

60

70

80

<=88%

88% - 91%

91% - 94%

94% - 96%

96% - 99%

99% - 102%

102% -

104%

104% -

107%

107% -

110%

110% -

113%

>113%

% Attainment

# o

f Te

rrit

ori

es

0

50

100

150

200

250

300

350

Test attainments to check biases in distribution and key parameters

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Incentive Plan Administration requires robust process with focus on quality

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Data MonthRoster

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

The IC Administration process must be focused on quality, and engineered for efficient implementation of changes

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

Poor Excellent

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IC Reports today need to be mobile ready

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Common Mistake: Plan Effectiveness needs to be continuously monitored

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Questions?

Documents

Competing Against Big Box Stores - PMSA€¢ Easy to communicate to the field • Reasonable number of metrics Additional Considerations • Motivation • Disruption/Change Management