Communicating objectives
Communicating objectives in a timely manner
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WHICH WOULD YOU PREFER:
TO INCREASE YOUR PERFORMANCE
OR FORGET ABOUT IT?
THE DIFFERENCE BETWEEN GOOD
AND BAD VARIABLE PAY IS
THE CAPACITY TO MOTIVATE
Commitment : a long-term relationship ?
Commitment is an integral part of business life: a company’s long-term development relies heavily on the wholehearted commitment of the men and women who put their ambition, talent and motivation to work for it.
However, a company’s variable pay policy cannot be viewed merely as a simple business quid pro quo whereby company directors buy employee motivation in exchange for monetary compensation.
Commitment cannot be purchased - it can only be won by creating a positive relationship between the company and its employees and promoting the values of :
- responsibility
- shared, balanced interests
- recognition of individual contribution
Motivation: what for ?
You may well ask whether a company should even devote sufficient resource and time to the subject of employee motivation and commitment? Well, we believe the answer is a resounding 'yes', since motivation helps to explain a number of fundamental principles that govern human behaviour inside and outside the workplace:
- Firstly, it is the process by which every individual initiates action.
- Satisfying our desires is the driving force behind all our actions and yet……when we fulfill our desires our motivation to achieve them is reinforced, not removed.
- Performance-related compensation offers a reward in return for results that are achieved through effort: participation in a performance-related pay scheme helps to develop an employee's ability to weigh up the pros and cons of expending such effort and this directly influences motivation
- A persistent gap between desire and satisfaction gradually leads to demotivation.
In this context, a variable compensation policy enables a company to articulate certain core principles and objectives and convey to its employees the motivational outcomes it must achieve in order to fulfill them.
Motivating personnel: art or science ?
Have you ever been the beneficiary of a variable pay scheme and had the feeling that it hadn’t been thought through properly?
A scheme perhaps put together without considering how different scheme elements will interact and their impact on the overall plan?
Have you ever come across short term fixes, hurriedly put together via a spreadsheet application to deal with outcomes that were not anticipated?
Needless to say, just paying out bonuses doesn’t automatically guarantee increased motivation for beneficiaries.
At Primeum, we believe that setting up a successful variable pay scheme can be approached rigorously and scientifically with three key stages:
- analysis and modelling of the current scheme
- elaboration of commercial, strategic and HR policies to permit the development of targeted motivation
- implementation of administration, communication and process control tools.
Delivering Effectiveness ?
Explain, communicate, evaluate...
is there anything else?
A simulation and communication tool with user-friendly graphics accessible to all beneficiaries will contribute to your variable pay scheme’s success. The tool facilitates familiarisation with your variable pay scheme, communicates any variable pay earned, maintains motivation and makes variable pay more tangible.
Identifying any misconceptions, making sure that scheme participants understand fully your scheme design and intent: management has a vital role to play in communicating and overseeing your variable pay policy.
A variable pay scheme, irrespective of whether it is brand new or a revision of an existing plan, must be perceived as a real blueprint for change within your company.
What is the best system?
Framing the question like this doesn't really help since variable pay is a process for which no one winning formula exists. A system’s effectiveness has to be evaluated within each company's specific context, which means there isn't a ‘best' system but rather a 'best fit' system: a system most appropriate for the beneficiary population, type and scope of commercial or business challenges, company culture and type of activity.
Primeum will guide its clients every step of the way in dealing with these essential questions:
- Are the potential rewards offered likely to motivate most scheme participants?
- Is the choice of performance variables and indicators statistically sound?
- Is the bonus payout consistent with the level of achievement?
- Do scheme effects conform to expectations? Have any counter-productive behaviours been encouraged?
Multiple objectives, complex realities: over-simplify or just make it straightforward?
Beware of overly simplistic schemes, for your variable pay plan must first and foremost generate the behaviours and outcomes set out in your variable pay policy.
Your plan should therefore:
- be as detailed as required to generate the desired outcomes.
- clearly communicate what is expected of beneficiaries in terms of performance.
- avoid counter-productive or negative effects arising from contradictory rules.
- keep the number of performance variables to a minimum.
- deliver an acceptable proportion of winners when the required results are achieved overall.
- be communicated effectively by management.
Allocating individual targets: make them ambitious and realistic?
‘It's a stretch but it's fair’...although something of a cliché, this dictum is very often heard in the context of a company’s national target.
However, the beneficiaries of target-based bonus schemes often see things differently. Indeed, the effectiveness of schemes such as these depends on how fairly the overall or national objective is allocated to individuals.
The target allocation process is complex, prone to mistakes and inequity, and can totally demotivate those who feel their targets are unachievable or fail to motivate others who feel their targets will be achieved without much effort. In practice, this means that the company will not maximise its sales as a result of a sub-optimal process.
How do you ensure your scheme is under control?
Have you ever had to abandon or modify a bonus scheme owing to unacceptable budget overspend?
To remove any chance of this happening, Primeum will work with you over three key phases:
- Definition of the variable remuneration envelope you are prepared to spend on achievement of the aggregate, or national, result.
- Evaluation of the company's expected results and the potential level of reward for beneficiaries.
- Exhaustive testing and simulation prior to deployment: during this evaluation phase, analysis of a scheme's performance variables allows us to fine-tune the device to ensure that the total payout at different levels of national performance will conform to your specifications.
Why automate the calculation process?
Would you prefer to pay out incorrect bonuses or pay late? Perhaps surprisingly, this dilemma is frequently encountered and can adversely impact desired motivational outcomes.
Automatic calculation of variable pay is indispensable. Designed as an integral part of a suite of market leading software tools, Primeum's variable pay management software responds to your operational needs:
- a growing number of beneficiaries and/or an increasing number of bonus protocols,
- growing sophistication in the design of variable pay devices and associated calculations,
- the use of reliable simulation tools for the development of bonus curves and different scheme parameters.
EVERYTHING STARTS BY
LISTENING TO YOU
Audit and diagnostic
Primeum has developed an exclusive methodology for analysing its clients variable pay schemes, which is conducted in two critical stages:
- a study based on a thorough statistical analysis to lay bare the different elements of a scheme and highlight inconsistencies, counter-productive outcomes and any other divergence from scheme intentions,
- a series of interviews conducted with variable pay scheme beneficiaries and management to ascertain how they view the current plan, with a report on strengths and weaknesses, effects on motivation, etc.
This ‘X-ray’ throws into relief any scheme dysfunctions arising from beneficiary misapprehension of scheme objectives or from inappropriate scheme rules.
Such a diagnosis is a vital starting point for designing a new scheme, since it provides a clear exposition of the current context, beneficiary behaviour and company objectives.
Scheme design
Primeum guides its clients through the development of variable pay policies that are clearly aligned with strategic, commercial and HR priorities.
Taken together with the conclusions derived from the Diagnosis, this variable pay policy is the starting point for designing a new scheme. In this design phase, Primeum's decision-making tools and experience are brought to bear to maximise the clarity and effectiveness of your new scheme.
Once a scheme prototype has been developed, Primeum runs exhaustive simulations which predict with great precision how the system will work when implemented. These simulations are conducted both on individual performance measures and collectively, and will confirm your policy specifications in terms of motivational effectiveness, selectivity (proportion of winners and losers), discrimination (share of bonus envelope amongst winners) and payout.
WE ARE FULL OF IDEAS
AND INNOVATIONS
Primeum has developed a series of engineered solutions to meet your variable pay needs and ensure that your scheme delivers the exact motivations you require. In addition to classical devices, such as actual versus target schemes, commission and ranking systems, Primeum offers a number of proprietary and innovative calculation processes that overcome typical shortcomings of classical devices.
Depending on your requirements, we will offer you:
Commitment Process
Primeum’s Commitment Process incentivises beneficiaries to accept the challenge of more ambitious targets, rather than trying to exceed lower or perhaps even under-estimated targets by as much as possible as happens with traditional target-based systems. Rewarding the precise achievement of ambitious but realistic targets, the Commitment Process aligns the interests of company and individual and provides a solid platform for maximising results.
This is quite a revolution in target-based bonus schemes. It replaces the often sterile traditional target or budget negotiation process with the constructive development of solid action plans to deliver the required results. Crucially, it also removes any incentive for participants to indulge in counter-productive practices that are often observed in traditional target-based schemes.
"Napper"
Primeum’s Napper allows you to inextricably link two performance measures without overpaying beneficiaries when they succeed on only one of the measures. Any bonus payable is calculated on results obtained against both performance measures (e.g. margin and turnover), and the tool allows you to define the weightings of the performance measures.
Traditional linking methodologies, based on simple mathematical formulae, can generate many counter-productive outcomes and result in participant focus on one or other of the measures.
Primeum’s Napper enables you to link two performance measures with total precision so you can generate the exact behaviours you require.
Performance Ranking Mechanism
Primeum’s Performance Ranking mechanism evaluates the contribution of each individual and overcomes the disadvantages of traditional ranking systems. In essence, it offers a simple way of calculating the relative contribution of each beneficiary to overall performance.
Ranking processes are often used when strict budgetary control is sought. However, there is a disconnect between bonus payout and the aggregate or national result as the same bonus envelope is disbursed whatever the level of overall performance; and bonuses paid do not reflect the real differences in beneficiaries’ results. Should someone who is ranked first when the national or overall target is not achieved receive the same level of bonus when the national target is exceeded?
Should the number of winners (i.e. those who receive a bonus) remain constant irrespective of the national performance? Is it better to be ranked third with a result only 3% less than the top performer, or ranked second with a performance 20% lower than the top performer?
Quality Process Execution
For many Businesses, the contribution to performance, developing purely around commercials functions, is increasingly regarded as essential, but cannot be measured only by usual economic criteria. Actually, the main variable performance of these businesses lies in the quality of implementation of action plan. Indeed, their task is not only to contribute to today’s business achievement but also create successful conditions for the future.
Prioritizing implementation quality of action plans by the requirement of economic performance: the challenge is clear, but it needs a real ability to manage inherent difficulties in handling qualitative targets within a variable pay scheme.
Primeum implementing Quality process allows you to combine these two requirements inseparably: a real need for quality and an economic performance requirement.
Primeum’s Adjusted Commission
Improvements in commission rates are intended to stimulate the company sales result requirement by the addition of an accelerator, i.e. a higher rate of commission above a certain threshold. This “outperformance” commission sometimes reinforces the effect of guaranteed income by making it even more profitable.
In addition to sales outcome alone, Primeum’s Adjusted Commission incorporates the effect of sales growth. Thanks to a three-dimensional “surface” (sales outcome, growth, pay), the commission is organised in such a way that for the same absolute growth, the marginal remuneration is higher for those starting from a lower base.
Those starting on this lower base are therefore more motivated to grow because their remuneration grows more quickly depending on their absolute growth. On the other hand, the impact on the big contributors is to encourage them to consolidate as much as it to grow.
Our approach allows for a commission adjustment according to performance whilst still keeping control of overall costs, - which is the advantage of a linear commission plan.
OUR SOLUTIONS HAVE
AN IMMEDIATE IMPACT
Incentive Manager Toolsuite,
A structured and holistic
software solution
You can manage all your needs related to the calculation and communication of variable pay elements of your sales teams with Primeum’s Incentive Manager Toolsuite (IMT).
IMT is a powerful software solution comprising:
Incentive Manager,
The management interface
for your variable pay
Thanks to Incentive Manager (IM) you control the entire process from importing data and calculations according to incentive rules you can modify, to the publication of reports and dashboards.
There is a workflow interface with logical steps from data importing, setting up calculations, creating reports, sending mails and exporting to the follow-up tool (Incentive Tracker).
During the calculation setup process, IM allows you to manage Human Resources related rules such as absences, role changes...
Optionally, IM is available for hosting in a Cloud environment, or as Software as a Service (SaaS). When “IM Light” is installed, the software is accessible remotely and securely.
Fiable, rapide et doté de nombreuses fonctionnalités, l’IM contribue à automatiser le calcul de vos rémunérations variables.
Incentive Tracker,
The communication tool for
your variable compensation schemes
Incentive Tracker (IT) offers the possibility for each of your sales people to look at the detail of his/her variable pay plan and the different bonuses during the period. Therefore they can simulate the impact of different levels of performance on their pay.
IT is also a facilitation tool for managers it includes a simulation mode which emphasises the motivational aspect of a goal linked to an action plan.
IT also comes as a web service accessible from a computer, tablet or smart phone.
In order to meet all your needs, there are many complementary modules: evaluation of qualitative criteria, eligibility tracking, publication of objectives, documents or integration of collaborative workflows.
Incentive Designer,
The tool to build variable pay plans
Incentive Designer (ID) has three principal functions:
- 1. The creation of payout curves which offers the chance to bonus according to a performance criterion.
- 2. The creation of two- dimensional surfaces allowing a bonus according to two inextricably linked criteria.
- 3. The simulation of the budget and its distribution.
These curves and surfaces can then be used in the Incentive Manager or in Excel for simpler usage. They feature as well in Incentive Tracker and are used in the simulation.
Target Manager,
The solution for aggregating
your objectives
Target Manager (TM) is a powerful tool to calculate individual objectives. Completely configurable and adaptable to your IS system, it calculates and aggregates your objectives whatever:
- Your sales hierarchy and geography
- Your products or portfolio of products
- Your cycles and the months they comprise
- Your performance indicators (sales, market share, growth)
- Your calculation methodology
TM gives you the freedom to formulate hypotheses, to simulate them and to compare them in order to adjust your variable pay plans. Your consolidated data can be exported directly into Incentive Manager or to your information systems for publication and/or calculation.
Management by Objectives Workflow
With MBO – Workflow, you collaboratively define the incentive elements at the core of your company and assess your sales people.
As a module within the Incentive Tracker, the MBO – Workflow uses its technology. Available online and completely configurable, this tool allows your teams to define which criteria (quantitative or qualitative) they want to be evaluated on. A validation process gives managers the opportunity of controlling the results of these discussions.
The collaborative element of this process enhances the involvement of the participants as well achieving buy-in to the variable pay plan.
3 SERVICE LEVELS
WHICH LEAVE
NOTHING TO CHANCE
Silver
You are looking for effective tools to design, calculate and communicate your variable pay?
Thanks to Primeum Silver service, the Incentive Manager and Incentive Designer tools are installed at your site. Primeum experts will train you in their usage.
Do you have a question about how to use and configure the software?
Primeum Silver Service will provide telephone technical support.
Gold
Do you want to take advantage of the power of the Incentive Manager suite?
Primeum Gold service provides access to all the software solutions of the suite (Incentive Manager, Incentive Designer, Incentive Tracker, Target Manager). If your teams continue to be responsible for the production (data import, calculation, reporting and infrastructure), Primeum will take charge of configuring the rules, of their evolution and functional assistance.
Do you want to focus on your day job?
Primeum Gold service offers a SaaS option whereby Primeum will guarantee the hosting of all the tools and data.
Platinium
Are you thinking of outsourcing the entire management and the communication related to your variable pay?
Primeum Platinum service offers you the freedom to concentrate on your strategic activities.
Whether it be configuration updates, data importing, calculations and checking, quality assurance, communication… Primeum will take responsibility for all these activities.
Who is in control of your incentive scheme?
You are of course! We will ensure `stewardship’! Equally we will manage the infrastructure as the tool will be hosted in SaaS mode through Primeum.
Le syndrome de
Le syndrome de
gauche
droite
1/17
DO NOT HESITATE
TO CONTACT US
Historique
Founded in 1994 by Pascal Beauchet under the name PBB, Primeum built its early expertise on that of its founder. In his time as Marketing Director with the Accor Group, Pascal Beauchet gained first-hand experience of the difficulties involved in managing variable pay schemes and of their failings. He also devised the firm’s very first exclusive process, based on his experience in the field: Primeum's Commitment Process.
Right from the outset, Primeum was awarded a wide range of client assignments. These highlighted the need for a fully comprehensive approach to variable compensation with our clients, which is now addressed by our full range of services:
Recruitment
Primeum is always seeking to recruit new talent to help us continue our growth.
Our consultants are graduates from engineering and business schools with sound knowledge of applied mathematics and data processing. We are also interested in hearing from software engineers with experience of working in a Windows environment (c++, C# VS 2005) and Linux (Php, Java).
If you think you fit the bill, please contact us.
INTERNATIONAL EXPERIENCE
ACROSS DIFFERENT INDUSTRIES
OF ISSUES IN
VARIABLE COMPENSATION
FOR ALL TYPES OF ROLES
We like to energize our clients
When would you like to
be energised?
Jean-Marc PAILHOL,
Jean-Marc Pailhol, ‘Unite Distribution’ director, COMEX member,
Allianz, France
“The significant workstream which Allianz France launched in 2010 to strengthen the commercial performance of its four sales teams translated for most sales teams into major changes in terms of training, management and remuneration.
It was because of this that we wanted Primeum to work with us in the complete redesign of the sales team remuneration scheme and especially its variable component. We chose the Commitment Process for all roles and teams in order to improve simultaneously the performance of sales advisers, the quality of their managers and their dedication.
Then, in order to accelerate to the implementation of the new remuneration system, we outsourced the calculation of all bonuses to Primeum.
The result is at the top end of our expectations with a level of buy-in to the new systems of between 96 and 100% and salesperson motivation in line with our strategic priorities.”
Hélène GEVREY,
Hélène GEVREY, Commercial Development Effectiveness manager,
PFIZER Eucan PC Business Effectiveness
“We wanted a robust solution to enable us to automate our bonus calculation process, and equally to be able to manage the significant data volumes which our European structure is facing.
We have in fact approximately 2500 sales people just within the primary care business unit in Europe. During a transition period, the Primeum solution was implemented to meet a temporary outsourcing requirement, but it was equally capable of being re-insourced during a second phase with Primeum continuing to support our teams.
This brought us efficiency and quality benefits which allowed Pfizer Europe to be the gold standard of the group in this field.”
OUR ADDED VALUE:
SEE IF IT IS
RIGHT FOR YOU
From theory to implementation
Communicating objectives in a timely manner
In 45% of companies, salespeople believe they receive their objectives too late. This is indicative of the desire of commercial directors to calculate objectives, especially sales objectives, as accurately as possible. These calculations can turn out to be extremely time-consuming, especially when managers, or even salespeople themselves, are involved in the process of determining sales objectives.
The motivational impact of an objective lies, to a significant degree, in the quality of the calculation (Is the objective fair? Is it accurate? Sufficiently stretching without being unachievable…). But motivation is also present at the time the objective is communicated to the participant. And yet we regularly observe one to two months’ delay in determining, and especially in communicating, objectives.
For short performance cycles (three or four months) such delays compromise the ability of management to direct how their sales team act. Fortunately, most salespeople continue to sell even without objectives, but obviously do not do so with the same involvement that we would like, and, especially, do not always do so with the products or range of services that the company would like to promote. Moreover, delayed objectives are often perceived as less legitimate (‘It took you all that time to that time to determine that?’).
But there are several ways of improving the situation:
- Guarantee the provision of the national objective in a timely manner. For January 1 that usually does not create too much of a problem. But mid-year revisions are too often only available late with regard to the evaluation cycles of the sales teams. It is appropriate therefore to put in place a process, supported by tools, that reduce the time it takes to revise the budgets which determine sales objectives. In such an exercise, there is a strong temptation to use extremely complex models to ensure the reliability of these budgetary trends. But experience suggests that such models are not always the most reliable, even they are clearly consume significant amounts of time and effort (keeping information up-to-date, expertise, internal client buy-in…)!
- When allocating national targets to sub-national objectives the same principle is essential: a simple and robust model will be more effective than a complex model which takes time to implement and which few people, other than those who built it, will be able to understand with all its subtleties. Thinking along the same lines, it is better to limit the number of interactions between senior management and the sales teams rather than undertaking numerous iterations (of course, the result can be more accurate with such iterations but the time taken in undertaking them ensures that operational action plans suffer!)
- Train the managers upstream from the exercise. Managers are the most important go-between in this critical phase of generating motivation among salespeople. They must be able to handle the most recent objections with assurance and self-confidence. Time should not be taken to know how the objective was calculated, but rather to know what commercial action plan to put in place to reach and exceed the objective.
Reversibility of variable remuneration
In 32% of cases, participants believe that their variable pay is in fact only slightly sensitive to their performance, and therefore it does not vary significantly from one cycle to another. This phenomenon greatly reduces the motivational impact of the plan, as motivation stems, in part, from the hope of winning a lot in the event of strong outperformance but also of losing in the case of underperformance.
There can be several reasons for this stumbling block:
- The multiplicity of different bonus schemes. In such cases, the vast majority of scheme participants will receive similar bonuses, outperforming on half of the individual schemes and underperforming on the other half. Under these circumstances their behaviour will be more opportunistic than strategic and they will go for the particular incentives that they know they can attain; they will neglect the others and will therefore not follow the overall commercial strategy of the company.
- A bias in how performance indicators are developed. For example, a partial understanding of the way a national objective should be allocated to among a sales team can lead to favouring a particular group of participants at the expense of a second group. In such a case, those who are advantaged will win a large bonus each cycle and the others will only occasionally reach their objective and can therefore only aspire to a small bonus.
- A failure to adapt the incentive payout curve to relevant performance characteristics. This will lead most participants to find themselves in a very specific part of the payout curve (with consistent national performance in each cycle). They will therefore receive very similar incentives over several consecutive
Sandbagging
Sandbagging occurs when a salesperson gives up selling during one performance cycle in order to accrue sales in the following cycle. This happens specifically when a salesperson realises he has nothing further to gain in the current cycle. 27% of those interviewed acknowledged the phenomenon.
Among the occasions where sandbagging can be observed are when:
- In a Sales versus Target (SvT) incentive scheme the ability to gauge the national target is unclear. A national SvT of around 90% will have the consequence that 50% of the participants will achieve an individual performance below 90% and will not get a bonus payment or only get a small one. Under these circumstances, certain participants will choose to minimise their sales in the current cycle in order to maximise sales in the following one, and hence also maximise their variable pay over the two cycles added together.
- The performance period is too long. If some participants see that half way through the performance cycle they will only be in line for a small incentive whatever (realistically) their performance during the second half of the cycle, they can decide to give up on the cycle in order to benefit more in the following one.
- Sales seasonality is either not taken into account or badly taken into account, which leads to an excessive, even unattainable, sales goal for some of the participants
The tool gets in the way
52% of sales directors interviewed admit that the changes they want to bring each year to the sales incentive plans are limited by what the tools they use allow them to do. Variable pay, which often accounts for around 30% of the remuneration of a salesperson, is, in most cases, administered using tools that are not specifically designed for this purpose. We need to ask ourselves why something that we would never allow for the salary (the remaining 70%), we accept for the variable part although the complexity of the calculation is clearly greater. When the sales director must change the behaviour of his salespeople and variable pay can be one of the tools that allow him to do this, it is unbelievable that the tools get in the way of his aims!
Outsourcing Analysis
Those responsible for the design and administration of variable pay plans recognise that the task that they are most likely to outsource first is the analysis and diagnosis of incentive schemes. But why analyse your own incentives ? There are many reasons :
- To confirm that the bonuses given conform to expectations.
- Are the ‘good salespeople’ remunerated as they should be?
- Is there enough differentiation between the ‘good salespeople’ and the ‘less good’ ?
- Do low bonuses exist?
- Is the system sufficiently ‘reversible’ or does it give rise to situations where success for one category of the population is guaranteed cycle after cycle, and another category is guaranteed to always lose’?
- Identify dysfunctionalities, if they exist, and find solutions for future cycles
- Determine when you have decided to change your variable pay plan, the path to follow:
- What changes do you want to bring about? Are there fundamental new ideas?
- Are you sure you have the means to undertake this change:
- technically: is the right data available ? Are the tools capable of being adapted to the changes ?
- as for embedding the new scheme with the participants, how should we communicate the change ? Do we need to anticipate training ? Do we need workshops with practical exercises for the managers ?
- Develop comprehensive communications for managers: it is often difficult to stand back and analyse in its entirety the impact of an incentive plan. If you give the managers overall reports (and more than reports a list of individual bonuses), it is easier for them to stand back and show their teams ‘that works !’ and that ‘this is fair’ !
Why externalise these diagnostics? There is always a concern when you stand back, so a third party allows you to have, more easily than would be the case internally, an objective point of view. Such a third party is more able to put things into perspective (with regard to market practicalities, compared to other industry sectors…)
Pharma : new criteria to take into account
The variable incentive compensation used in the pharmaceutical industry has for a long time essentially lain in either financial requirements (Sales versus Target or SvT) or competitive ones (market share growth).
However, many companies are placing a growing importance on sales plans which allow for short, medium or long-term success, as well as the quality of the sales representative interaction:
- ?79% of companies on the panel foresee the adoption of a robust, qualitative bonus, which evaluates the implementation quality of an action plan
- 63% of the panel wish to incorporate certain ‘client service’ elements into the incentive plans of sales representatives
Finally, the promotion of multiple products by the same team gives rise to a need to evaluate overall success on a ‘portfolio of products’, and to avoid having multiple bonuses which dilute the impact of each of them and the concomitant motivational impact.
- 92% of the panel want in the future to remunerate certain teams on the basis of ‘product portfolio’."
Pharma : step curves
The majority of incentive payout curves in the pharmaceutical industry are step curves, which give rise to some negative motivational effects:
- The discontinuity of the bonus (a very small gap in performance can have a big impact on the incentive around step thresholds). This is not consistent with continuous performance (has a participant at 100% of Sales vs Target significantly outperformed another participant at 99.99% of SvT to the point where a big difference in bonus is justified between the two?)
- Equivalently the payout curve displays ‘plateaus’ :
- Participants have no incentive to make ‘incremental sales’ if such sales do not allow them to reach the next step on the curve
- Two participants with different levels of performance can get exactly the same bonus if the two are both on the same step
Pharma : Quota setting methodologies and managerial adjustments
Those responsible for quota setting consider that managerial intervention is essential. But in practice managers only intervene in 13% of cases. This paradox seems to hide deeper problems :
- Those responsible for quota setting do not have the time for managerial intervention, either because the national goals arrive too late, or because the quota calculations take too long
- the process and tools in place do not have the required flexibility for managerial intervention, which is by its nature iterative
- managers do not have immediately to hand the reasons whythey need to raise or lower individual objectives
Unfortunately these impacts often occur in parallel which leaves no opportunity for managerial intervention in what should be an eminently manageable process. So managers do not have the opportunity to discuss with their sales teams what it takes to implement action plans that will lead to goal attainment.
But all is not lost. It is clear that prescriptive methodologies and normative algorithims to create objectives can deliver satisfactory results for 90% of salespeople (although they must be handled with care). For the 10% of cases that do not fit the model, it is advisable to provide managers with the means to adjust the initial objective whether at the top or the bottom end. A combined process such as this is appropriate to guarantee objectives which:
- are timely (at least for 90% of the salespeople)
- are fair and equitable
- managers are able to explain the rationale
Under-distributive payout curves
Those responsible for quota setting consider that managerial intervention is essential. But in practice managers only intervene in 13% of cases. This paradox seems to hide deeper problems :
- Those responsible for quota setting do not have the time for managerial intervention, either because the national goals arrive too late, or because the quota calculations take too long
- the process and tools in place do not have the required flexibility for managerial intervention, which is by its nature iterative
- managers do not have immediately to hand the reasons whythey need to raise or lower individual objectives
Unfortunately these impacts often occur in parallel which leaves no opportunity for managerial intervention in what should be an eminently manageable process. So managers do not have the opportunity to discuss with their sales teams what it takes to implement action plans that will lead to goal attainment.
But all is not lost. It is clear that prescriptive methodologies and normative algorithims to create objectives can deliver satisfactory results for 90% of salespeople (although they must be handled with care). For the 10% of cases that do not fit the model, it is advisable to provide managers with the means to adjust the initial objective whether at the top or the bottom end. A combined process such as this is appropriate to guarantee objectives which:
- are timely (at least for 90% of the salespeople)
- are fair and equitable
- managers are able to explain the rationale
It is easy to hypothesise that if at the national level we reach the national objective, individuals will be split in the folllowing way :
- Half will be below 100% of the objective
- The other half will be above 100% of the objective
In terms of expenditure we can therefore conclude that half of the population will get nothing, and half will get twice the target bonus. In total therefore we have spent the pot initially allocated
Step 2 in building the curve - introduce a slope: in order to eliminate the perverse effects of steps in the curve in Step 1, we will introduce a slope to this curve.
In budget terms we can see that those who ‘win more’ in this new situation (those who are below 100% of target achievement) are offset by those who ‘win less’ in this new situation (those who are above 100% of target achievement). Therefore the impact of the introduction of this slope is financially neutral - although this is not the case in terms of the motivational impact.
Step 3 in the building the curve: introduce a different slope before the attainment of the objective. We can easily understand what the person who designed the curve is trying to do. He is putting a steeper slope before the attainment of the objective to motivate particpants to reach the 100% performance level. The intention is clear: more to motivate the attainment of the objective than to exceed it.
Unfortunately, we can see that the catch-up phenomenon that we observed in Step 2 no longer occurs here (the ‘lower’ incentives before 100% are not matched by those ‘higher’ above 100%.) The payout curve becomes under-distributive with this step.
Step 4 : a real example from a pharmaceutical company:
The introduction of small adjustments around Step 3 does not change the economic impact of the curve. It remains structurally under-distributive.
News
2013-01-08
Primeum wins project in Poland
Primeum has won a sales force effectiveness project for the Polish subsidiary of a major pharmaceutical company. This is a new departure for Primeum imn two respects: the first time Primeum has worked directly on sales effectiveness issues, and the first time Primeum has worked in Poland.