To Pay Commissions or Not To Pay... is it a question?

Many industries have historically paid commissions to their sales staffs (and sometimes others in the organization) as a normal part of business. Indeed, it has been an expectation with field sales people. The “incentive plan” may influence the job and company they choose to join because they are looking for huge upside potentials in earnings.

Let’s focus on the Pharmaceutical and Biotech industries. Given the evolving environment around payer formularies, government oversight, restrictions in access to physicians, etc., is it still prudent to pay commissions?

Maybe the first question to ask is why pay any sort of incentive? Is it because everyone else does it? Because its’ expected? Because it’s part of the total compensation package? STOP!

You should pay incentives (whether it’s field sales based or any other position in your company) because you want to encourage specific behaviors and activities that you believe will yield improved performance. If you think that, by getting people to do certain things in certain ways with certain timings, you’ll get more out of their efforts and better results for the company then it may be worth doing.

You should NEVER pay any sort of incentive UNLESS you can do three things: (1) Clearly define what you need to accomplish, (2) Determine who can help you accomplish the goal(s), and (3) Quantify what they need to do extra, that’s not part of their normal work activities, that you’re paying for in their salary.

Incentives are frequently given for poorly thought out reasons (if the’re thought out at all). The measurement metrics either don’t exist or don’t support the objective. Plus, once you start an incentive program it’s hard (or near impossible) to stop and it can quickly become an entitlement. When an incentive becomes part of the regular compensation package and is expected, then it’s lost its value.

Ask yourself some questions:

1. Can the people you want to “incentivize” actually accomplish what you need done?
2. Are there restrictions that make it hard or impossible for them to deliver?

Remember that an incentive plan that is never paid (because the people can’t deliver) is worse than no plan at all because it will have a negative influence on their attitude and hurt rather than help performance.

What steps should you work through to determine whether you need an incentive or not?

1. What are you trying to achieve that needs special or extra effort?
2. Who can impact the results?
3. What actions, behaviors or activities do you need?
4. Who can perform the activities and can they actually do them?
5. How would you measure and report on the performance?
6. How much are you willing to pay? (Is it a % of the extra results or some other method?)
7. How often will you pay out?

Those are some of the things you may want to consider in developing an incentive plan. Give us a call to discuss your situation to see if we can help.