building, and customer service orientation
To do this, the consultants used a behavioral events interviewing format – one in which interviewers ask candi- dates to tell them stories about certain experiences. Those stories, says the VP, reveal the truth because candidates never know what the interviewer is looking for. As a result, they tend to stick to the facts about their thoughts in describing their actions (and thus reveal underlying traits and motives). As a result, the pharmaceutical com- pany was able to fairly easily identify which new candidates had the critical competencies to be successful selling the company’s oncology products. So what about all the oncology reps on board who had been hired to a profile better suited to the less techni- cal, more scripted dermatology sale? Working with consultants, the phar- maceutical company decided each of its existing oncology reps would be screened using the new competency model – almost as if they were being hired for the first time. Based on the results of that screening, several on- cology reps transferred to the derma- tology unit. To lure the best new candidates into the company and motivate in- creased performance from the oncol- ogy reps who stayed, consultants next turned attention to compensation.
THE COMPENSATION FIX When the consultants began working with the pharmaceutical company, they had a single, across-the-board compensation model for both dermatology and oncology reps. It worked like this: Each quarter, all reps were given the same goal, which was tied to market share. At the end of the quarter, all dermatology reps (and, separately, all oncology reps) were ranked, top to bottom, in order of their performance of that goal. Reps were then paid according to that ranking – if you were on top, you were compensated substantially; if you were on the bottom, you re- ceived nothing.
There was also a deferred incentive piece of the compensation model. The company held a portion of every rep’s incentive pay until three years after they had earned it. Manage- ment’s reasoning was that reps would stay with the company to receive the incentives they had earned – thereby reducing turnover.
Consultants pushed for a com- plete overhaul of the compensation structure for oncology reps. While the simplified structure and the practice of ranking reps against each other might work for the more simplified dermatology sale, the VP knew it would neither bring in the talent the company needed to grow oncology sales, nor would it motivate perfor- mance from the highly experienced reps they hoped to attract. The consulting company’s first step was to boost compensation for oncology reps above the benchmark for the industry. “We knew that, to attract reps from other organizations, we needed to pay more,” says the VP, adding that they targeted the 75th percentile as the baseline com- pensation point.
Next, they devised a compensa- tion structure based on volume rather than market share and ranking. The reason: Volume goals put perfor- mance entirely into the hands of the sales rep. When goals are set using market share and relative rankings, pay is based on factors outside the rep’s direct line of sight – namely, the competition and colleagues. And the VP knew such an arrangement would be less acceptable to experienced, top-performing reps. Today, each oncology rep’s vol- ume target is determined based on his or her territory. Reps are given a goal and, if they sell 100 percent of that goal, they receive 100 percent of the payout at the end of the quarter. When they fall short or exceed volume, they are compensated accordingly. But the bottom line is that performance is now measured individually – on fac- tors within each rep’s control – and
it uses a scientifically derived target appropriate for each rep. Finally, the consultants eliminated the practice of withholding incen- tive pay for three years. As the VP points out, if you’re going to motivate someone to perform using incentive pay, you need to pony up the pay- check as near in time as possible to the performance that earned it. And, as it turned out, the strategy to limit turnover by requiring reps to wait three years for their incentive pay wasn’t working anyway: Sales turnover at the company was on a par with turnover elsewhere in the pharmaceu- tical industry.
The upshot was that hiring people whose experience and abilities directly align with the unique requirements of a certain type of sale – and then com- pensating them in a way that has been proven to boost performance – will produce the desired results. That may be Management 101, but, sometimes, it takes an outsider’s fresh perspective to re-ground us in those basics. Prior to the spin-off of the oncology division, the pharmaceutical com- pany’s sales reps had been organized under a single structure. There were about 500 dermatology reps and 50 oncology reps – all of whom reported to 50 sales managers. Those 50 sales managers reported to six area direc- tors who, in turn, reported to a single national sales director. After the spin-off, dermatology and oncology became two separate organizations. The dermatology group retained the same reporting structure. The oncology organization, which grew to 150 reps, maintained a similar structure – reps reporting to sales man- agers, who reported to area directors, who reported to one national sales director. All of the company’s U.S. sales are made by its field reps; the com- pany uses no outside channels. Following these changes, the company reported lower sales turn- over with higher margins and overall growth after separating its oncology from its dermatology business. A win- win for everyone.
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