June 27, 2022

The payout curve against which a sales force is compensated has tremendous ability to motivate the sales force to drive sales—so much so that we are dedicating a three-part series to biopharma payout curve design. The first part of this series explored the six core payout curve shapes and the second part examined when each of these core shapes should and should not be used. In this third and final entry to the series, we will explore another critical element of payout curve design: setting the payout threshold (i.e., where payout begins to be earned) and the slope (i.e., how steep the curve is at different levels of performance). We will explore thresholds and slopes in the context of goal-based plans at different stages of the product life cycle.

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Post-Launch Stage

During the post-launch stage of the product life cycle, the payout threshold for a goal-based plan should start very early in order to immediately engage the sales force. Furthermore, because setting accurate goals for post-launch products is typically quite difficult, setting the payout threshold low mitigates potential goal setting inaccuracies.

The slope for a post-launch goal-based plan should be very steep early on and should slow down above goal at higher attainment levels (about 120% attainment) to ensure fiscal responsibility. A common error made with post-launch payout curves is to steepen the slope when the sales representative exceeds goal. The reasoning behind this practice is that if the representative is able to achieve sales above goal, then the payout curve should provide even more of an incentive to exceed goal. While this reasoning may sound acceptable, accelerating payouts often creates dissonance among sales representatives because representatives for whom adoption is not as fast feel cheated and perceive the plan as unfair, destroying sales force morale. In order to incentivize the sales force to sell beyond goal without resulting in sales force dissonance, the payout curve should be designed with a steep slope both before and after goal—but then become less steep at about 120% attainment.

Growth & Mature Stages

The payout threshold for a growth or mature product should start at the point at which the sales representative’s efforts make a difference in the territory’s sales. So, when does this occur? We at The Marketing Advantage refer to this point as the retained base: the amount of sales that would occur in any given territory if the territory were vacant. The retained base is typically anywhere from 70% to 90% of a territory’s goal and depends on a number of characteristics, including competitive environment, whether the product treats an acute or chronic condition, whether the product can be inventoried, etc. Ensuring that the retained base is not set too high or too low is critical to motivating the sales force.

Once the retained base is set, the next question concerns how much should be paid at this threshold. The answer to this question depends on the company’s compensation philosophy; while some companies prefer to set the payout threshold below the retained base and pay a small amount once this threshold is reached, others set the payout threshold at the retained base and pay a larger amount. In either case, amount paid at the threshold is crucial as the amount earned at the payout threshold impacts the slope of the payout curve around 100% attainment. For all growth and mature products, the steepest slope should be around 100% attainment. This is because if goals are being set correctly, then most sales representatives should fall around goal. As such, since the payout curve should be designed to motivate as many sales representatives as possible and representatives are most motivated when they are earning the most money for their effort, then the payout curve should be steepest where most representatives will fall: around goal.

Accordingly, a common error in payout curve design is to accelerate the slope after 100% attainment. As discussed in the post-launch section above, this mistake is often made in an attempt to incentivize representatives to continue to sell even though they have achieved goal. However, let’s consider a race: does the crowd cheer only after a runner breaks a record or also as the runner approaches the record? The crowd cheers on the runner both as the record is reached and after it is broken to motivate the runner to break the record. Similarly, the slope of the payout curve should be steepest just below 100% attainment (to encourage representatives to achieve goal) as well as just beyond 100% attainment (to encourage representatives to overachieve goal).

Finally, the payout curve should slow down at an attainment level above goal to prevent runaway payouts and ensure fiscal responsibility of the plan.

Decline Stage

Depending on the rate of decline, the payout threshold of products in the decline stage should be set below the retained base. The reason for the lower threshold is to keep the sales force engaged; since the product is declining, compensation should start being paid early.

The slope for declining products should not be as steep around 100% attainment as it is for growth or mature products. This is because sales force payouts will not be heavily affected should national goals be set too low or too high.

Conclusion

As this three-part series has demonstrated, there are many nuances to biopharma payout curve design that make designing the right payout curve for a sales force challenging, from shape to threshold to slope. Even within these elements, the type of sales compensation design as well as product life cycle stage must be considered in order to reach the right payout curve design. Throughout this series, we provided some general rules to follow when designing your payout curve; however, while these rules hold true for most biopharma products, there are a number of instances when these rules should not be followed, either due to market conditions, product conditions, etc. As such, these rules should be regarded as best practices for most cases.