Trends In Pharma Compensation

By Malcolm Fleschner

Every year, Pharmaceutical Executive Magazine conducts an exhaustive survey of the pharmaceutical and biotech industries, creating an annual snapshot of current practices in the critical areas of sales force staffing, compensation and performance standards. The magazine’s January edition revealed the latest results, underscoring some of the most important trends affecting sales professionals working in the pharmaceutical industry today.

1. Staffing
Big pharma appears to have reached a point of diminishing returns as the race to deploy ever more reps in an already crowded field has begun to subside. None of the big companies participating in the survey predicted that their sales forces would grow in 2006. By contrast, a majority of biotech and specialty pharma companies indicated that they would be growing either “a great deal” or “somewhat” in the coming year.

Big pharma’s hiring slowdown does not appear to be translating into a greater use of Contract Sales Organizations (CSOs), however. None of the survey respondents anticipate using CSOs more than in the past, while 44 percent said they are less inclined to turn to a CSO solution.

2. Pay
This past year competitive pressures drove pharmaceutical sales reps’ median pay up, from $62,400 in 2004 to $66,300 in 2005 – a starting salary that is 10 percent higher than in comparable industries. With other compensation factored in, the average starting salary is actually 32 percent higher.

3. Flexibility
Just under half (44 percent) of the participating companies offer job sharing or part time opportunities. They’re also beginning to make these options available earlier in a rep’s career with the company: 70 percent have no minimum tenure requirement for job sharing and 94 percent have none for part time work.

4. Performance Criteria
Faced with such variables as territories with different potential, demographic factors, managed care’s impact and others, pharmaceutical companies continue to struggle to find the most equitable means of setting fair and even goals for salespeople. The survey results indicated that more companies are using exclusively quantitative measures, such as prescription volume, revenue and market share to measure reps’ performance. Qualitative measures like major-business-objective results and managers’ appraisals tend to be used as secondary measures, if at all.

When too many factors contribute to determining a reps’ pay, the increased complexity of measurement poses a problem. This often results in companies failing to reward top performers commensurate with their performance, say the editors.

Another issue that the magazine’s editors raise is with distributing incentive rewards based on a ranking of the salespeople’s results. This practice occurs at 56 percent of the companies surveyed. As the article points out, however, while relative-rank compensation is simple and clean, it can turn friendly competition among reps into something more cutthroat and counterproductive.

5. Big Picture
Overall, pharmaceutical sales remuneration held strong, growing from an average of $82,900 in total cash compensation per rep in 2004 to $89,600 in 2005. Much of the jump occurred among specialty sales reps, whose compensation jumped from $73,200 to $84,000 during the same period.

Another interesting development observed by Pharmaceutical Executive is the increasing practice of allowing district managers to allocate funds at their discretion. These so-called “kickers” are above and beyond the regular incentive-compensation plan and are typically used to reward reps for behavior not covered by the existing compensation structure. This approach, say the editors, allow DMs the flexibility to compensate (literally and figuratively) for perceived shortcomings in company compensation plans.