WHITE PAPER NEXXUS SALES. Administering MBO-based Incentive Compensation Plans

Transcription

1 WHITE PAPER NEXXUS SALES Administering MBO-based Incentive Compensation Plans

2 Introduction Managing by Objectives, more commonly referred to as MBO s, has been around in the Pharmaceutical industry for many years, but has historically been largely reserved for National Accounts positions. However, recently MBO s are growing in use for other sales roles including office-based territory representatives. The justification for this shift away from sales data metrics and toward the more subjective MBO ratings can be traced to several industry trends like the concern over any perceived encouragement of off-label promotion, the greater focus on account-based selling and the introduction of new sales roles focused on patient reimbursement and risk management that place a greater emphasis on soft factors rather than sales quotas. So, what are MBO s and when should they be considered? MBO s are specific goals set by management for an individual or group of sales personnel and the attainment of which is usually measured based on a supervisor s opinion or rating rather than objective data. MBO s can help organizations measure and motivate performance in situations where there is a lack of timely and accurate sales data, products require a team-based selling model or when non-sales personnel are calling on customers. As MBO s are used more widely in incentive compensation plans, it is important to apply a consistent process and system that can withstand scrutiny and ensure fairness. Describing such a process will be the focus of this white paper. The MBO Process When incorporating MBO s into an incentive compensation plan there is a standard process flow of defining objectives, approving them for deployment, capturing ratings, calculating incentive pay and communicating results to employee participants. The management of each step is critical to the efficiency and effectiveness of the program and automated systems should be used whenever possible for consistency, efficiency and accuracy. Set Objectives Capture Ratings Calculate MBO Performance and Incentive Pay Report Performance and Pay ADMINISTERING MBO-BASED INCENTIVE COMPENSATION PLANS 2

3 Setting Objectives The initial phase of establishing MBOs is to identify what are the appropriate objectives to set across the sales force. This requires collaboration between sales leaders and the sales force to identify a set of objectives that are aligned with the overarching company goals. Once these objectives have been identified, it is a best practice to make sure they are in alignment with the SMART framework. The acronym SMART is used to identify the key attributes of a good set of objectives. In the table below you can see the most common terms used to describe the acronym that are important attributes for objective building: S M A R T Specific, Significant, Stretching, Simple Measurable, Meaningful, Motivational, Manageable Attainable, Appropriate, Achievable, Agreed, Assignable, Actionable, Ambitious, Aligned, Aspirational, Acceptable Results-oriented, Realistic, Relevant, Resonant Time-oriented, Trackable ADMINISTERING MBO-BASED INCENTIVE COMPENSATION PLANS 3

4 An example of how a Life Sciences company can apply this framework to a District Manager and a Sales Representative can be found below: District Manager Sales Representative Goals Minimize Territory Vacancies Increase Physician Participation - Speaker programs S.M.A.R.T.? Specific/Simple Specific/Stretching Actions to Achieve Objective Measurable/Manageable Achievable/Actionable Results-Oriented Trackable/Timing: Quarterly measurement and semi-annual compensation Retain current sales representatives and fill empty positions quickly Have no more than a 10% Vacancy rate within a district Measurable 20-15% Underperformed 14-11% Below 10% Met 9%-6% Exceeded 5% or Less Outperformed Measureable/Motivational Achievable/Actionable Results-Oriented Trackable/Timing: Quarterly Measurement and semi-annual compensation Increase messaging about meetings and events with physicians Enroll 10% of physicians within the territory, achieve 75% participation rate Enrollments - Weight 25% Participation Rate Weight 75% Structuring Role-Based and Individual Objectives While working through the SMART framework, it is important to manage role-based objectives to ensure that all objectives move toward the common set of company goals. In our prior example, we looked at a district level vacancy management objective and a territory level physician M&E attendance objective. Using these measures within the same MBO program creates a district level objective that would not be applicable to the sales representative and vice versa. In fact, if an MBO program is used for multiple roles across the organization it is common to have unique objectives for each role. In this example, the company goal is to increase attendance at meetings and events across the nation. These role-specific objectives are in line with the company goal as it is important for Managers to fill their territories with sales representatives that can then be deployed to the field to increase awareness of physician speaker programs and events. ADMINISTERING MBO-BASED INCENTIVE COMPENSATION PLANS 4

5 In addition to role-based objectives, there is also the option of setting individual objectives. Setting unique objectives for an individual can be very motivating because there is significant buy-in when setting these types of objectives. However, when objectives are focused on the individual it is often difficult to measure the performance of the group and the relative performance differences between individuals. Using a mixture of role-based and Individual objectives gives management the ability to gauge performance across a common set of metrics while including an individual component that can motivate innovation and creativity within the organization. A common set of objectives can also solidify company goals that require a unified effort to achieve. Sample Objectives Acquisition of a new skill or certification Customer satisfaction criteria Broaden access Distribute materials across departments Improve CRM data quality Educate accounts on new product Dispel myths about existing product Contract/Account profitability targets hit Minimize utilization controls Ensure compliance Present to new customers Retain existing customers Assist the Team by covering accounts beyond territory Train/Mentor another team member Approving MBO s Once a set of objectives are established, the next step is to get them approved by managers and the field force. Using automated collaboration software is helpful in accomplishing this step quickly and accurately. A proper system will enable plan administrators to circulate MBO s to managers and sales representatives through web-based workflows to get approvals and feedback from each participant prior to setting the final MBO s. The system should allow administrators to monitor the approvals process with ongoing updates and progress reports. If there is a need to communicate to managers about upcoming deadlines for approval a mass- or alerts should be sent by the system with a reminder to complete the final sign off. The ability of a Sales Performance Management (SPM) software system to automate this collaborative process has proven to be an efficient method of managing the approval phase for program administrators. ADMINISTERING MBO-BASED INCENTIVE COMPENSATION PLANS 5

6 Collecting MBO Ratings After the objectives are set and approved, the SPM system can also automate the heavy lifting of capturing the actual ratings from the field during the evaluation period. The workflow software allows administrators to deploy objective rating instruments that are specifically tailored to the role and individual through a secure collaboration channel. In addition, administrators can define their preferred ratings scales (i.e. 1-5, 1-10) for each objective in order to ensure that high performers and low performers can be properly identified. Other important rules and restrictions can be configured within a software tool like this; including requiring reason codes for ratings, forcing all employees and objectives to be rated, and applying a maximum ratings budget to each supervisor that forces them to distribute high and low ratings across their personnel. This is an example of an automated Web-Based workflow screen that can be used for capturing ratings from the field. Using Ratings in Incentive Compensation Beyond automating the objective setting and collection phases, Sales Performance Management systems seamlessly integrate MBO ratings into plan rules and incentive pay calculations. Administrators can build their plan rules to incorporate these ratings while they are in the field being captured. This enables the organization to have the entire incentive calculation process fully configured prior to the conclusion of the collection period. Once the ratings are through the collection phase the home office can focus on analyzing the performance and pay results immediately. Reporting Performance and Pay MBO ratings and incentive pay information are very sensitive data and need to be communicated through secure channels with tremendous accuracy. Without an automated process in place, sales organization may rely on ing spreadsheets which can be an unsecured channel to deliver such sensitive and confidential data. SPM systems have been designed to mitigate these risks and provide sales operations groups with a secure channel for reporting and provide business intelligence tools that deliver clear analytics to the intended recipients. With the right system, plan administrators can report on aggregated results from the field and analyze performance at the team and geographic levels. There is also the ability to look at incentive pay across specific roles and to breakout the performance pay tied to MBO s vs. sales performance measures in cases where both are being used within the incentive plan. ADMINISTERING MBO-BASED INCENTIVE COMPENSATION PLANS 6

7 When it comes to communicating the MBO ratings and associated pay calculations to the field participants, the same secure, role-based web portals that were used to collect MBO approvals and ratings can also be used to report results to the field. Some of the benefits of using a portal platform for reporting to the field force are: Portals are web-based and password protected making them a secure and accessible channel for capturing ratings and reporting results role-based reporting gives managers and representatives access to role-specific information Can be embedded within CRM system one location for activity and results Accessible through mobile devices like the ipad or Tablet PC Can provide links to additional sites and documentation (i.e. plan rules, intranet) This is an example of a Web-Based reporting portal that was built for a sales manager. This displays to them their performance across MBO metrics and the amount of pay they have earned for MBO performance ratings. Conclusion As the prevalence of MBO-based incentive programs grows, a Sales Performance Management system can deliver a completely automated administration method that allows you to set objectives, capture ratings, calculate incentive pay and report results to the field through secure channels. If you are planning to incorporate an MBO component into your incentive compensation plan, an SPM system is a powerful management tool to increase the efficiency and effectiveness of every step of the process. ADMINISTERING MBO-BASED INCENTIVE COMPENSATION PLANS 7

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