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Incentive Compensation Making or Breaking Your Success
Dick Rylander
President
BioPharmaceutical Strategies LLC
Session Objectives
To get you to ask questions
and
Think Out-Of-The-Box
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Understand why you want/need an IC plan
Use IC as a tool to drive success
Determining who to incentivize and why
Developing an IC planning process
Reviewing a case example
What is an Incentive?
Main Entry: in·cen·tive
Pronunciation: in-'sen-tiv
Function: noun
Etymology: Middle English, from Late Latin
incentivum, from neuter of incentivus stimulating,
from Latin, setting the tune, from incentus, past
participle of incinere to set the tune, from in- +
canere to sing -- more at CHANT
: something that incites or has a tendency to
incite to determination or action
synonym see MOTIVE
What does Motivate mean?
Main Entry: mo·tive
Pronunciation: 'mO-tiv, 2 is also mO-'tEv
Function: noun
Etymology: Middle English, from Middle French motif, from motif, adjective, moving,
from Medieval Latin motivus, from Latin motus, past participle of movEre to move
1 : something (as a need or desire) that causes a person to act
2 : a recurrent phrase or figure that is developed through the course of a musical
composition
3 : MOTIF
- mo·tive·less /-l&s/ adjective
- mo·tive·less·ly adverb
- mo·ti·vic /mO-'tE-vik/ adjective
synonyms MOTIVE, IMPULSE, INCENTIVE, INDUCEMENT, SPUR, GOAD mean a
stimulus to action. MOTIVE implies an emotion or desire operating on the will and
causing it to act <a motive for the crime>. IMPULSE suggests a driving power arising
from personal temperament or constitution <buying on impulse>. INCENTIVE applies
to an external influence (as an expected reward) inciting to action <a bonus was
offered as an incentive>. INDUCEMENT suggests a motive prompted by the
deliberate enticements or allurements of another <offered a watch as an inducement
to subscribe>. SPUR applies to a motive that stimulates the faculties or increases
energy or ardor <fear was a spur to action>. GOAD suggests a motive that keeps one
going against one's will or desire <thought insecurity a goad to worker efficiency>.
5 Key factors
• The decisions you make about:
– Why to incent
– What to incent on
– Who to incent
– How to incent
– When to Incent
• Will make or break your success & goals
Questions…
• Thinking through a plan
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Why do you have a plan?
How do incentives motivate (or not)?
What are you seeking to achieve?
Will having an incentive plan motivate your people to do more?
Which positions/jobs should be incentivized?
• How does each of the positions impact the success parameters?
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What should the components of an IC plan be?
What should you pay on?
Who impacts results?
Individual or group and why?
Are the incentives supporting the company goals
Why have an IC Plan?
• Because everyone else does
• We need to because the marketplace
requires us to (to be competitive)
• Everyone expects it
• It’s a motivational tool
• It’s a way to reduce salaries
• It rewards only if we are successful
Have an IC plan because…
 It helps you achieve your goals & objectives
 It produces activities or behaviors that would
not otherwise occur (assuming that those are
the efforts that will be productive)
 It rewards those who actually are key to
producing the results
 It produces an ROI that meets your need
IC Plans are a tool to meet goals
• Pay incentives to help assure you will meet your
company goals
• Determine what activities and behaviors you
need to assure goal achievement
– Define those activities/behaviors for each position
• If your incentive plan doesn’t get people to do
what you need done, the way you need it done
and when you need it done you hurt success
and even run the risk of damaging performance
What to incent on?
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Sales?
Meeting goals?
Special projects?
Activities?
What can you measure and report on?
How does each differently impact results?
Who to incent?
• Most companies focus on field sales
– Is that the best way to go?
• Do some non-field people have a major
impact on success?
– Who and why?
• Should all positions receive the same plan,
payout rates, etc.?
• What is success? (Meeting goals?)
How should you incent?
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Do you use cash?
Prizes?
Plaques, trophies and certificates?
An ongoing “traveling” award
Contests?
Stock options or grants?
What level?
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National?
Regional?
District?
Group?
Individual?
Combination?
When should you pay?
• Spot (finding people doing things right)?
• Monthly, quarterly, bi-annual, annual?
• Are the payout timeframes the same for all
positions?
• How often do you need to pay to keep a
good “line-of-sight” and motivate ongoing
efforts?
Designing an IC process
Create a cross functional team that will:
a) Represent all groups who impact results
b) Gather information
c) Act as a conduit for two way communication
and feedback
d) Will evaluate the various options
e) Communicate with the organization to show
the effort and reinforce the results
Establish objectives timeline’s
• Establish what the team is to do
– Determine who should be incentivized and why
• Assign a team leader to coordinate and produce
summary reports following each meeting to be
sent to all members
• Define the start/completion timeframe
• Create specific meeting dates with actions for
each meeting
• Be prepared to organize the team members into
either individual assignments or create subteams with specific responsibilities
Define the questions to answer
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What should the plan accomplish?
What is the optimal outcome?
What kind of ROI are you looking for?
How will you measure success of the plan?
Does the plan support company goals?
Do department or group goals align?
Which positions should be incentivized?
Is a plan only for field sales or should it include other
parts of the organization and if so who and why?
• How frequently should incentive be paid and why?
• Should an IC plan be cash only or include prizes, trips,
etc.?
Assessing positions
After you define which positions you want
to consider for an IC plan create a
template for the team members to use to
organize their thoughts:
Template
Example of results of the process
Goals:
• Develop a plan that ties each positions
ability to impact results to their incentive
compensation
• Align efforts of all positions to assure
maximum effectiveness, cooperation and
results
Example (cont’d)
Territory Managers
Assumptions:
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TM’s target earnings are $xx,xxx/yr = $x,xxx/qtr
Quarterly payouts
3 parts:
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Enrollments with an *objective by region/district
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Quarterly sales target for the region
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Each TM shares equally (ex: 95% = .95)
Minimum of 85% to activate up to 100%
Annual over 100% the rate is 2x for the +%
TM’s in **tiered groups (like assignments)
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Performance (shipments) as a % of the average for tier
Example (cont’d)
Discussion
• Focus on enrollments because that’s what they can most
impact
• Tie enrollments to sales by requiring sales performance
minimums as a qualifier
• Add an individual component by “tiering” like territories to
encourage individual effort in conjunction with the team
• If annual sales (by region with nation meeting the plan)
exceed the plan then their earnings are multiplied at a 2x
rate.
– Ex: NE region = 105% of their sales objective then their earnings
are settled at 110%
RSM
Assumptions:
Annual target earnings are $xx,xxx = $x,xxx/qtr
80% of their time is Product 1 and 20% is Product 2
Impact is their assignment + define TM’s (Super
Territory)
• Payments made quarterly
• Performance (for Product 1) is based on a
“Super Territory” which is comprised of their
assignment + defined impact TM’s
• 2 components
– S.T. enrollment goal
– S.T. sales objective
BD Recommendations
Assumptions
 Annual IC = $XXk = $xx,xxx/qtr
 Quarterly payouts would improve effort/effectiveness
Top 3 areas they can impact:
Contribution
1.Enrollments
2.DC’s
3.Sales
Hiring/training/developing/retaining people
Coaching
Example (cont’d)
• This process was repeated for each
position in the field organization
• Ultimately this lead to plans for reps,
managers, MSL’s, NAM’s, trainers,
marketing and select non-field personnel
Non-Cash Incentives
Contests
 Annual National Contest
 TM’s (x); RSM’s(x); NAM (x); MSL (x); BD (x)
 Recognizes and rewards based on IC factors
 Regional level contest(s)
 April – September & October – March
 Crosses years to continue efforts beyond fiscal
 Recognizes and rewards activities and behaviors that
lead to success (not IC factors)
Special Recognition Programs
Purpose:
 To offer a non-cash method of recognizing
colleagues across the organization for efforts
and are results
Method:
 A points program where colleagues accumulate
points to be used to purchase merchandise
through an on-line catalog
Summary
• Cross functional involvement and buy-in is essential
• Defined, specific and measurable goals and action steps
are critical
• A well thought out and coordinated IC plan will drive
results
• A poorly or half baked plan will demotivate and damage
results
• You MUST have a well thought out, tested, measurable
and reported plan with sufficient frequency to keep a
high visibility
• If you can’t commit to doing it right don’t do it at all
Where are you at and where should you be?