Why Life Sciences Sales Compensation Plans Must Change to Address COVID-19
April 7, 2020
With social distancing during COVID-19 leaving pharma, biotech and medical device sales representatives at home rather than in the field, what does this mean for the sales incentive compensation plans they are being compensated against? Should life sciences companies continue with their current sales compensation plan with the intention of mitigating later, alter their current sales compensation plan to take the pandemic into account, or adopt a completely new sales compensation plan? Let’s explore the unique landscape pharma, biotech and medical device companies are facing in the midst of COVID-19 sales compensation and what this landscape means for sales incentive compensation planning.
Unique Considerations for Sales Compensation Planning During a Pandemic
Pharma sales compensation planning can be difficult even when not facing times of crisis. In addition to all of the product elements that have implications for how the sales incentive compensation plan should be designed—such as product life cycle stage; mode of administration; treatment of acute or chronic disease; the ability of the product to be inventoried; whether the product is an orphan drug; etc.—a pandemic adds in a number of new elements that make sales compensation planning during this time especially challenging.
Uncertainty surrounding a pandemic
How long will the pandemic last?
Will different parts of the country recover sooner? By how much?
How do we compensate since parts of the country will suffer more than others?
Financial impact during a pandemic
If we achieve only 60% of our national goal, how much of the sales incentive compensation budget should we pay out?
What do we want the distribution of bonuses to be?
Do we want a portion of the sales force to not earn any payout? How many will quit?
Thus, there are a number of considerations that have significant implications for sales compensation planning for a pandemic.
Options for Sales Compensation Planning
With these unique considerations in mind, let’s explore the three primary options pharma, biotech and medical device companies are facing in sales incentive compensation planning for COVID-19.
Option 1: Continue with current compensation plan without adjusting for pandemic and mitigate later
The first option for life sciences sales incentive compensation planning is to continue with the current compensation plan as if a pandemic is not occurring, and then take some sort of corrective action after the pandemic has ended. However, too often, mitigation after the fact does little to encourage an already despondent, demotivated and disenchanted sales force; in fact, as explored in one of our previous blogs, post-plan period mitigation can actually be inequitable and pay for non-performance. Thus, there are significant limitations with this option.
Option 2: Continue with current compensation plan, but adjust to take pandemic into account
The second option is to continue with the current sales incentive compensation plan, but make some adjustments in order to take into account the pandemic. For example, the core compensation plan designed will be maintained, but the national forecast might be adjusted in order to account for the anticipated impact on sales; the threshold might be lowered so that sales representatives start earning compensation sooner; etc. However, as explored in the previous section, there is so much uncertainty surrounding COVID-19 that trying to anticipate its impact through the sales compensation plan will be incredibly difficult and highly prone to error.
Option 3: Implement completely new compensation plan exclusively for pandemic
The final option for sales compensation planning in response to COVID-19 is to adopt a completely new sales incentive compensation plan designed exclusively for this pandemic. Given the unique considerations explored in the previous section as well as the limitations found with options 1 and 2, this is the option most able to mitigate the impact of COVID-19 and keep the sales force motivated. But what should this new sales compensation plan look like. Visit our other COVID-19 blogs for three sales compensation approaches to avoid as well as five recommendations to help guide sales compensation planning.
Conclusion
These difficult times in the midst of COVID-19 are so unprecedented that sales compensation plans must change drastically in order to mitigate the impact on sales forces. The uncertainty surrounding the pandemic in parallel with its financial impact demonstrates why it is unfortunately not enough to continue with the sales incentive compensation plan a sales force was being compensated against going into this pandemic. Instead, pharma, biotech and medical device companies must adopt a special sales compensation plan designed exclusively for this pandemic in order to mitigate its impact and keep the sales force motivated.
