Economic downturn takes toll on incentives and raises

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Results of a study conducted by ZS Associates designed to benchmark incentive practices in the pharmaceutical and biotech industries revealed an increase of 8% in total target compensation in 2009, and that variable pay as a percentage of overall target compensation remained constant at 25%.

The study, which included respondents from 44 companies representing more than 50,000 sales reps and managers, stated that companies are reacting to the economic downturn by freezing target incentives and reducing increases to base salaries.

According to the study, 53% of the companies who took action did not increase their target incentives; 29% of those reduced the rate of increase in base salaries; while 12% froze base salaries. Quota-based bonus, according to study results, continues to be the predominant component of incentive plans for sales force personnel because quote-based plans provide the fairest way to address differential territory potential and do not create competition between reps if properly implemented. 

According to the study, companies have also had to improvise to deal with data restrictions such as New Hampshire's ban on the sale of prescribing data.

Stephen Redden, principal and leader of ZS Associates' Incentive Compensation Practice said that compensation patterns are unlikely to change in the near future. “The pharma industry moves much as the general economy does and I don't see any evidence of an economic improvement,” said Redden, adding, “the general unemployment rates are continuing to increase a little bit which is going to continue to put pressure on pharma companies as well. It's probably going to get a little bit worse before it gets better, but we haven't come to that point where we've turned the corner.”
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