Pushing the Boundaries: How Confident Companies Are Boosting Incentives to Drive Growth

Transcription

1 MPS-IPR Survey 2015 Pushing the Boundaries: How Confident Companies Are Boosting Incentives to Drive Growth Chad Albrecht & Russell Schubert

2 MPS-IPR Survey 2015 Pushing the Boundaries: How Confident Companies Are Boosting Incentives to Drive Growth Chad Albrecht & Russell Schubert

3 Medical equipment companies are turning to sales incentive schemes to accelerate their growth. That s the main finding from the 2015 Incentive Practices Research study for the medical products industry, carried out recently by ZS Associates. Various indicators point to their use of bolder incentive schemes. For example, incentive budgets have increased, top performers are being more generously rewarded, a comfortable majority of companies have no caps on payouts and more aggressive quotas are being set to stimulate outstanding performance. Survey methodology This report is based on the latest annual survey of incentive practices within medical equipment companies, carried out by ZS Associates for the past 10 years. Participants from 30 U.S.- based medical products, devices and services companies completed an online survey for their sales teams between April and June Respondents answered questions on the following range of topics: + Incentive methods + Pay practices: Thresholds and caps + Reporting and timing + VBI quota setting + General sales force measurements + General incentive compensation issues Questions were asked about various categories of sales team members: territory or account managers, specialist reps, clinical support reps, capital equipment specialists, inside salespeople and key/ strategic account managers. We believe that companies slow to follow suit are at serious risk of falling behind the competition. More cautious incentive schemes may result in losing key people, with the remaining employees left to wonder why they re not being offered the same incentives as peers in rival companies. Another major survey finding is that levels of satisfaction with the administration of incentive schemes are below what they should be, and appear to be falling. The methods frequently employed may not be sophisticated enough for use in large, complex organizations. Spurring growth through incentives Surveyed companies reported significant growth in 2014, with a median revenue increase of around 7.5% from the previous year. As confidence returns, and the conservatism and caution of previous years recede, companies are using incentive plans more forcefully to preserve and even accelerate this growth trend. Several results from the survey point to this conclusion. To retain excellent performers and maintain their commitment, companies plan to pay the top 10% an average multiple of 2.3 times the target incentive this year, an increase from 1.9 in the previous year. A quarter of companies now pay as much as three times the target incentive to these top performers. HOW MUCH INCENTIVE PAY (AS A MULTIPLE OF TARGET INCENTIVE) DOES THE PLAN PAY OUT FOR TOP 10% OF EMPLOYEES? Figure 1. Median incentive pay for the top 10% performers is more than twice the target incentive pay. 3

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5 Recognizing the need to get all salespeople on board in the push for growth, companies are by no means focusing all their attention on top performers. Managers are being increasingly rewarded for the average performance of direct reports, showing that less stellar, but nevertheless invaluable, sales team members are being well looked after too. WHAT COMPONENTS ARE INCLUDED IN THE SALES INCENTIVE PLAN? Sales Manager Quota-based bonus 77% 100% 88% Commission MBOs Relative-based bonus Average of direct reports Other 50% 44% 50% 38% 33% 33% 15% 26% 17% 31% 11% 17% 8% 4% 8% % of respondents Note: Respondents could select more than one option. Figure 2. The most common components of incentive plans for managers are quota-based bonuses and commissions. Aggressive but accurate quotas Overall, more money for incentive payments is being set aside, with total budgets going up an average of 3%. Companies are confident enough about their prospects that they are setting more aggressive quotas. A growing number of companies set quotas that exceed national sales objectives (see Figure 3). Moreover, payouts are triggered at a higher percentage of the quota than in the previous year. 5

6 IF SALES QUOTAS WERE SUMMED ACROSS THE SALES FORCE, WHAT PERCENTAGE OF THE NATIONAL SALES OBJECTIVE WOULD THEY BE? Sales Manager > 100% 17% 42% 100% 50% 75% < 100% 8% 8% Figure 3. More and more companies are setting their quotas even higher than the national sales objective. Put simply, the carrot is being dangled very conspicuously in front of sales teams. Companies seem to be saying: You will have to perform very well to receive rewards, but if you do, we won t be shy about paying you what you deserve. Indeed, there are few limits to what successful salespeople can earn. A comfortable majority of companies do not impose a cap on sales incentive payouts. For example, almost two in three companies (65%) impose no cap on payouts for territory or account managers. To provide reassurance that quotas are accurate and effective, more than four in five companies (83%) allow for quota refinements that respond to specific market circumstances. It may be that the ubiquitous use of data on sales potential the share of a total market that the organization can reasonably expect to capture is also helping to facilitate such a positive incentive program. All companies now use potential data, whereas a significant minority didn t last year. As a result, they will be more comfortable about distributing generous rewards with the full knowledge that they are based on fair but challenging quotas reached through the use of more sophisticated methods. Inefficiency blights administration Such bold incentive schemes can only succeed fully through robust and flexible administration. Yet it is clear from our survey that the administration of incentive compensation leaves much room for improvement. Few companies are very satisfied with their administration, and to give further cause for concern, the number dissatisfied in this respect is growing. 6

7 Administration was also cited as the topmost issue that organizations struggle with (see Figure 4). What s more, several of the other most popular responses to this question also relate to administration in some way. WHAT ARE THE BIGGEST INCENTIVE COMPENSATION ISSUES YOUR ORGANIZATION STRUGGLES WITH? Rank Issue Data availability/accuracy Administration Managing multiple plans Automation Changing market requirements Quota setting Incentive plan complexity Figure 4. Administrative issues are some of the toughest incentive compensation challenges. An increasing reliance on spreadsheets and databases, rather than software, runs parallel to this mild sense of dissatisfaction. The majority of companies (60%) use this method of administration, with only 27% using either purchased or custom-built software. It is worth noting that the sample of surveyed companies in this year s survey uses spreadsheets more frequently than last year s sample. These more unsophisticated methods of administration are a contributing factor to other survey results. First, we observe that the least satisfied plan administrators are using spreadsheets and that software users and outsourcers are significantly happier with their administration systems (see Figure 5). HOW SATISFIED IS YOUR ORGANIZATION WITH ITS ADMINISTRATION METHODS? Figure 5. Overall satisfaction levels are lukewarm. 0 Spreadsheets Software designed for Sales Compensation Management 7

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9 Second, the companies in this year s sample are allocating more full-time equivalent (FTE) employees to what is now more labor-intensive administration, potentially raising costs. The median number of FTEs this year is two, compared with 1.5 in those companies surveyed last year. HOW MANY INTERNAL FTES ARE ALLOCATED TO INCENTIVE COMPENSATION PROCESSING AND REPORTING? Figure 6. 60% of companies still use spreadsheets and databases to handle incentive compensation. Action items for medical equipment companies Be bold with incentives: Companies with more cautious incentive plans risk falling behind the competition in the quest for growth. As companies enter a more favorable business environment, setting more aggressive quotas and eliminating caps can introduce the necessary stimulus to boost performance, and reduce the risk of turnover of valued salespeople. Enhance the sophistication of your quotas: By using data on sales potential, companies can also feel confident that they are setting quotas accurately, and that even large incentive payments are fully merited. Quota refinements, based on local field knowledge, provide further reassurance. Refine administration: Manual administration is leading to lower satisfaction and higher costs, is hampering the implementation of new plan designs and is creating related issues that are clearly vexing some companies. Such companies need to respond by identifying appropriate software to hone administration, and make incentive programs that much more effective. 9

10 About the Authors Chad Albrecht is a ZS Principal based in Chicago, Ill. He leads ZS s B2B Sales Compensation practice. Chad has helped numerous clients create and implement motivational sales incentive plans and set fair and challenging sales quotas. His clients include companies in the medical device, pharmaceutical, high tech, manufacturing and business services industries. Russell Schubert is a ZS Manager in Evanston, Ill. He has worked with numerous medical products and services companies to find solutions for a variety of issues related to incentive compensation, helping to design and implement incentive compensation plans and quota-setting processes. 10

11 About ZS ZS is the world s largest firm focused exclusively on improving business performance through sales and marketing solutions, from customer insights and strategy to analytics, operations and technology. More than 4,000 ZS professionals in 21 offices worldwide draw on deep industry and domain expertise to deliver impact where it matters for clients across multiple industries. To learn more, visit or follow us on Twitter (@ZSAssociates) and LinkedIn.

12 For more information, please contact: ZS Associates zsassociates.com ZS Associates 08-15