Asosiasi Profesional Total Rewards Indonesia (APTRI)

Indonesian Society for Total Rewards Professional (InSTRaP)

Cash
Designing Effective
Recognit
Compensation System Systems
3Ps for Sales Professionals
ion
Sales
Comp Philosophy, Concept & Case Study
Mix
Experien
WLB
ce

Knowled
ge
BIMA HERMASTHO, Dr
Chairman InsTRap
+628122862849
Ig/fb @bimahermastho
 APTRI (InSTRaP)
Asosiasi Profesional Total Rewards Indonesia
Indonesian Society for Total Rewards Professional (InSTRaP)

Vision
Knowledge Center for Total Rewards solutions that able to Enhance Employee Prosperity and Business Sustainability

Mission
Developing, update and adopt compelling and powerful total rewards solutions to elevate employee satisfaction and
improving organization productivity

Value
Dynamic, Universalistic, Integration and Teamwork

Strategy & Program

Knowledge Sharing & Creation, Education & Training, Research, Survey & Network
 SALES COMPENSATION
PT XYZ

Goal is to be the best salesforce in the industry !

To achieve this :
• Attract and retain the best people
• Motivate all reps to achieve higher performance, while maintaining
highest ethical behaviour
• Develop culture based on results

Overall compensation therefore needs to be competitive

• Particularly the variable component...
• ....and particularly for top reps

Incentive schemes need to be clearly linked to sales performance and simple to

understand
 SALES COMPENSATION
Four Key Components

1 Compensation 2 Incentive 3 Payout 4 Portfolio

guidelines scheme guideline alignment
design s
Base pay levels Simplicity and Bonus payments New products vs.
clarity established
Variable pay levels Payout curves
Drivers of incentive
Payout periods
Distribution
Minimum sales
targets
Top performer
schemes
 1 Compensation Guidelines

SALES COMPENSATION
Four Key Components

1 Compensation 2 Incentive 3 Payout 4 Portfolio

guidelines scheme guideline alignment
design s
Base pay levels Simplicity and Bonus payments New products vs.
clarity established
Variable pay levels Payout curves
Drivers of incentive
Payout periods
Distribution
Minimum sales
Top performer targets
schemes
 1 Compensation Guidelines

VARIABLE COMPONENT OF COMPENSATION

SHOULD BE HIGHLY COMPETITIVE (I)

Base salary should be competitive, variable pay should be highly competitive

Compensation relative to main competitors in market

Rp Above
average Top 25%
overall

To p 20%

Base Bonus Total

salary
 1 Compensation Guidelines

VARIABLE COMPONENT OF COMPENSATION

SHOULD BE HIGHLY COMPETITIVE (II)

Mix of variable vs. salary should be in line with local market practices

Variability across markets(1)

Low variable Mid variable High variable
Rp pay market pay market pay market

40% Salary
70%
90%

60% Variable
30%
10%
Mix 1 Mix 2 Mix 3
Ensure Co is at the Ensure Co is in top Caution over increasing
leading edge in terms 20% on variable variable pay, remain
of variable pay pay within local peer group
(1) Average compensation split of competitors
(2) Top performers typically defined as top 10% of Sales person
 1 Compensation Guidelines

COMPENSATION
Summary of Key
Guidelines

1 Compensation guidelines

Total average sales compensation should be top quartile (25%) relative to national
competition

Variable component of pay should, in general, be top quintile (20%) relative to national
competition

Variable pay should be set at levels which encourage sales effort, but do not provide
excessive reward which might lead to unethical behaviour

Compensation for top performers(1) should be particularly competitive to aid retention

(1) Top rep performers typically defined as top 10% of sales person
 2 Incentive scheme design

SALES COMPENSATION
Four Key Components

1 Compensation 2 Incentive 3 Payout 4 Portfolio

guidelines scheme guideline alignment
design s
Base pay levels Simplicity and Bonus payments New products vs.
clarity established
Variable pay levels Payout curves
Drivers of incentive
Payout periods
Distribution
Minimum sales
Top performer targets
schemes
 2 Incentive scheme design

INCENTIVES SCHEMES SHOULD BE SIMPLE AND TRANSPARENT

Effective schemes should be simple, transparent and clearly communicated

Simplicity and transparency Communication process

Set clear targets 1 Incentives scheme clearly

communicated at national level at
Keep relationship between start of year
performance and rewards simple
2 Scheme information cascaded to
Use easy-to-follow calculations reps through sales management

Spend time and effort communicating 3 Explicit mechanisms set-up to

scheme to reps answer rep questions

All reps should be able to calculate their

own bonus at any stage of the year
 2 Incentive scheme design

REWARDS SHOULD BE PRIMARILY DETERMINED

BY SALES PERFORMANCE

Overview of input to bonus

% input to bonus

Non-sales Focus input where

Non sales input 0–20% change of behaviour
required if Activity desired, e.g., activity
individual sales levels levels, targeting
performance not ~50%
available Sales
input(1)
80–100% Qualitative Total FLSM
Sales vs. target input <10%
on promoted
input
products most
~50%
important: drives
sales culture
Total input Non-sales input

Qualitative input important if individual sales data unavailable

(1) Key performance metrics and targets should be aligned between incentives and rep performance management
 2 Incentive scheme design

SCHEME SHOULD BE DESIGNED SO THAT 75–85% OF REPS

ARE EXPECTED TO RECEIVE BONUS

Range of payouts versus performance

No. of
Sales Bottom Average To p
person quartile quartiles quartile

Motivate reps at
Do not reward most levels of
poor performance to
performance improve

Performance
(sales and
other factors)

Top sales
Expect bottom schemes to
Expect 75-85% of all reps to receive cash
15-25% of reps to encourage
bonuses
be paid no bonus excellence
 2 Incentive scheme design

INCENTIVES SHOULD INCLUDE TOP PERFORMER AWARDS

Illustrative examples of top performer awards

To p performance along multiple dimensions can be recognised...

Best absolute results Biggest improvements Broader contributions
• Sales • Sales growth • Event organisation
• Market share • Market share growth • Customer service
• New prescribers • Most new hospital • Project work
• Etc. formulary listings(1) • Marketing support
• Etc. • Etc.

...at both individual and team levels

Recognition can be on individual, team and territory basis, e.g.:
• "Best new sales person"
• "Most improved sales team"
• "Best territory"

(1) For dispensing markets

 2 Incentive scheme design

INCENTIVES
Summary of Key
Guidelines

2 Incentive scheme design

All reps should fully understand their incentives scheme

80-100% of rewards should be determined by sales achieved(1)

Schemes should be designed so that 75-85% of reps are expected to receive a

cash bonus

Targets should sum at all levels, including nationally

Top performer schemes should be established with focus on "recognition"of

top 10% (or less) of reps

(1) Key performance metrics and targets should be aligned between incentive scheme and rep performance management
 3 Payout guidelines

SALES COMPENSATION
Four Key Components

1 Compensation 2 Incentive 3 Payout 4 Portfolio

guidelines scheme guideline alignment
design s
Base pay levels Simplicity and Bonus payments New products vs.
clarity established
Variable pay levels Payout curves
Drivers of incentive Incentives for 2nd
Payout periods and 3rd detail
Distribution
Minimum sales
Top performer targets
schemes
 3 Payout guidelines

BONUS AMOUNTS SHOULD BE BASED ON ACHIEVEMENT

RELATIVE TO TARGET

Illustrative ‘on target’ bonus payments

Sales Pay 23%

30% expected
(Rp) expected bonus
bonus
Should be easier
for a senior rep to
27
exceed target
27

Rewards the same

sales outcome with
the same bonus 90 120

Junior salesman Senior salesman Bonus

Bonus should be paid as a fixed amount, not Base salary
based on a percentage of salary
Note: In the markets where it is possible to set individual targets and track their individual achievement, bonuses can be set relative to base salary
 3 Payout guidelines

RELATIONSHIP BETWEEN PERFORMANCE

AND REWARD SHOULD BE SIMPLE
Capping Avoids Inappropriate Bonus
Payments
General payout curve

Bonus (Rp) Avoid perception

of unethical rep
behaviour

Start payout below

national sales targets to
motivate majority of reps. Payout cap
New products:(1) New products:(1)
75-85%, 140-150%
Mature products: Mature
~95% products:
120–130%

100 Sales vs. target (%)

Payout curve should also depend on detail position

(1) Products are typically classified as "new" for up to 2 years after launch, however, this depends on local market conditions and product type
 3 Payout guidelines

INCENTIVES
Summary of Key
Guidelines
3 Payout guidelines

When shared targets are set, bonuses should be paid as fixed amounts rather than as
percentage of base salary

Payout should start at 75–85% of target achieved for new products and ~95% for mature
products(1)

Payout rates should be capped beyond 140–150% of target achieved for new products and
120–130% for mature products(1)

Payouts can occur every cycle, but should be limited to 75% of bonus earned until year end

(1) Products are typically classified as "new" for up to 2 years after launch, however this depends on local market conditions and product type
 4 Portfolio alignment

COMPENSATION
Four Key Components

1 Compensation 2 Incentive 3 Payout 4 Portfolio

guidelines scheme guideline alignment
design s
Base pay levels Simplicity and Bonus payments New products vs.
clarity established
Variable pay levels Payout curves
Drivers of incentive
Payout periods
Distribution
Minimum sales
Top performer targets
schemes
 4 Portfolio alignment

PAYOUT RATES SHOULD REFLECT BOTH DETAIL

POSITION AND PRODUCT MATURITY

Illustrative example of relationships between detail payout curves

Payouts for new and mature products(1) Payouts for 1st, 2nd and 3rd line details
(both 1st detail) (assuming all are mature products)

Bonus (Rp)
Bonus (Rp)
New(1)
1st detail 60% 1st line
Bonus for 2nd detail
line detail
Payout should product
be the same for should
100% of target be less than 1st
Mature 30% 2nd line
line product
1st detail detail
Typical
3 line
rd bonus
10% weighting
detail
s
for 3 detail
60 100 120 140 (60:30:10)
calls
60 100 125
Sales (%) Sales (%)

(1) Products are typically classified as "new" for up to 2 years after launch. However, this depends on local market conditions and product type
 4 Portfolio alignment

PAYOUT SHOULD DEPEND ON ACHIEVING MINIMUM SALES

LEVELS FOR ALL DETAILED PRODUCTS

Illustrative minimum sales levels for bonus

Total bonus impacted if minimum levels are

not achieved for all products
Target (%)

100% 100% 100%

Min
Min Separate
level Min
level sales levels
80% level
75% reflecting
70%
portfolio
strategy

Product A Product B Product C

Maximise sales levels across portfolio and prevent reps 'gaming'

 4 Portfolio alignment

INCENTIVES
Summary of Key
Guidelines

4 Portfolio alignment

Rewards should be weighted according to portfolio prioritisation

Payout for 2nd or 3rd details should always be lower than for 1st detail products

New products should typically be allocated greater proportion of bonus pool(1)

Payout of full bonus should be dependent on achieving minimum sales levels for all
key products detailed by the rep

(1) Products are typically classified as "new" for up to 2 years after launch, however this depends on local market conditions and product type

Compensation
1 guidelines
Total average rep
compensation should be
top quartile (25%) relative
to national competition
Variable component of pay
should, in general, be top
quintile (20%) relative to
national competition
Variable pay should be set
at levels which encourage
sales effort, but do not
provide excessive reward
which might lead to
unethical behaviour
Compensation for top sales
performers(1) should be
particularly competitive to
aid retention
(1) Top rep performers typically defined as top 10% of sales reps
(2) Key performance metrics and targets should be aligned between incentive scheme and rep performance management
(3) Products are typically classified as "new" for up to 2 years after launch, however this depends on local market conditions and product type
SALES COMPENSATION
Summary of Key Guidelines:
Q&A
Incentive Payout Portfolio
2 scheme
3 guidelines
4 alignment
design
All reps should fully When shared targets are Rewards should be
understand their incentives set, bonuses should be paid weighted according to
scheme as fixed amounts rather portfolio prioritisation
than as percentage of base
80-100% of rewards should salary Payout for 2nd or 3rd details
be determined by sales should always be lower
achieved(2) Payout should start at 75– than for 1st detail products
85% of target achieved for
Schemes should be new products and ~95% for New products should
designed so that 75-85% of typically be allocated
mature products(3)
reps are expected to
greater proportion of bonus
receive a cash bonus Payout rates should be pool(3)
capped beyond 140–150%
Targets should sum at all
of target achieved for new Payout of full bonus should
levels, including nationally
products and 120–130% for be dependent on achieving
Top performer schemes mature products(3) minimum sales levels for
should be established with all key products detailed by
focus on "recognition"of Payouts can occur every the sales person
cycle, but should be limited
top 10% (or less) of reps
to 75% of bonus earned
until year end