Incentive Compensation - Making or Breaking Your Success

1. Incentive Compensation - Making or Breaking Your Success Dick Rylander President BioPharmaceutical Strategies LLC

2. Session Objectives To get you to ask questions and Think Out-Of-The-Box • Understand why you want/need an IC plan • Use IC as a tool to drive success • Determining who to incentivize and why • Developing an IC planning process • Reviewing a case example

3. What is an Incentive? Main Entry: in·cen·tivePronunciation: in-'sen-tivFunction: nounEtymology: Middle English, from Late Latin incentivum, from neuter of incentivus stimulating, from Latin, setting the tune, from incentus, past participle of incinere to set the tune, from in- + canere to sing -- more at CHANT:something that incites or has a tendency to incite to determination or actionsynonym see MOTIVE

4. What does Motivate mean? Main Entry: mo·tivePronunciation: 'mO-tiv, 2 is also mO-'tEvFunction: nounEtymology: Middle English, from Middle French motif, from motif, adjective, moving, from Medieval Latin motivus, from Latin motus, past participle of movEre to move1:something (as a need or desire) that causes a person to act2: a recurrent phrase or figure that is developed through the course of a musical composition3: MOTIF- mo·tive·less /-l&s/ adjective- mo·tive·less·lyadverb- mo·ti·vic /mO-'tE-vik/ adjectivesynonymsMOTIVE, IMPULSE, INCENTIVE, INDUCEMENT, SPUR, GOAD mean a stimulus to action. MOTIVE implies an emotion or desire operating on the will and causing it to act <a motive for the crime>. IMPULSE suggests a driving power arising from personal temperament or constitution <buying on impulse>. INCENTIVE applies to an external influence (as an expected reward) inciting to action <a bonus was offered as an incentive>. INDUCEMENT suggests a motive prompted by the deliberate enticements or allurements of another <offered a watch as an inducement to subscribe>. SPUR applies to a motive that stimulates the faculties or increases energy or ardor <fear was a spur to action>. GOAD suggests a motive that keeps one going against one's will or desire <thought insecurity a goad to worker efficiency>.

5. 5 Key factors • The decisions you make about: • Why to incent • What to incent on • Who to incent • How to incent • When to Incent • Will make or break your success & goals

6. Questions… • Thinking through a plan • Why do you have a plan? • How do incentives motivate (or not)? • What are you seeking to achieve? • Will having an incentive plan motivate your people to do more? • Which positions/jobs should be incentivized? • How does each of the positions impact the success parameters? • What should the components of an IC plan be? • What should you pay on? • Who impacts results? • Individual or group and why? • Are the incentives supporting the company goals

7. Why have an IC Plan? • Because everyone else does • We need to because the marketplace requires us to (to be competitive) • Everyone expects it • It’s a motivational tool • It’s a way to reduce salaries • It rewards only if we are successful

8. Have an IC plan because… • It helps you achieve your goals & objectives • It produces activities or behaviors that would not otherwise occur (assuming that those are the efforts that will be productive) • It rewards those who actually are key to producing the results • It produces an ROI that meets your need

9. IC Plans are a tool to meet goals • Pay incentives to help assure you will meet your company goals • Determine what activities and behaviors you need to assure goal achievement • Define those activities/behaviors for each position • If your incentive plan doesn’t get people to do what you need done, the way you need it done and when you need it done you hurt success and even run the risk of damaging performance

10. Whatto incent on? • Sales? • Meeting goals? • Special projects? • Activities? • What can you measure and report on? • How does each differently impact results?

11. Whoto incent? • Most companies focus on field sales • Is that the best way to go? • Do some non-field people have a major impact on success? • Who and why? • Should all positions receive the same plan, payout rates, etc.? • What is success? (Meeting goals?)

12. How should you incent? • Do you use cash? • Prizes? • Plaques, trophies and certificates? • An ongoing “traveling” award • Contests? • Stock options or grants? • What level? • National? • Regional? • District? • Group? • Individual? • Combination?

13. When should you pay? • Spot (finding people doing things right)? • Monthly, quarterly, bi-annual, annual? • Are the payout timeframes the same for all positions? • How often do you need to pay to keep a good “line-of-sight” and motivate ongoing efforts?

14. Designing an IC process Create a cross functional team that will: • Represent all groups who impact results • Gather information • Act as a conduit for two way communication and feedback • Will evaluate the various options • Communicate with the organization to show the effort and reinforce the results

15. Establish objectives timeline’s • Establish what the team is to do • Determine who should be incentivized and why • Assign a team leader to coordinate and produce summary reports following each meeting to be sent to all members • Define the start/completion timeframe • Create specific meeting dates with actions for each meeting • Be prepared to organize the team members into either individual assignments or create sub-teams with specific responsibilities

16. Define the questions to answer • What should the plan accomplish? • What is the optimal outcome? • What kind of ROI are you looking for? • How will you measure success of the plan? • Does the plan support company goals? • Do department or group goals align? • Which positions should be incentivized? • Is a plan only for field sales or should it include other parts of the organization and if so who and why? • How frequently should incentive be paid and why? • Should an IC plan be cash only or include prizes, trips, etc.?

17. Assessing positions After you define which positions you want to consider for an IC plan create a template for the team members to use to organize their thoughts:

18. Template

19. Example of results of the process Goals: • Develop a plan that ties each positions ability to impact results to their incentive compensation • Align efforts of all positions to assure maximum effectiveness, cooperation and results

20. Example (cont’d) Territory Managers Assumptions: • TM’s target earnings are $xx,xxx/yr = $x,xxx/qtr • Quarterly payouts 3 parts: • Enrollments with an *objective by region/district • Each TM shares equally (ex: 95% = .95) • Quarterly sales target for the region • Minimum of 85% to activate up to 100% • Annual over 100% the rate is 2x for the +% • TM’s in **tiered groups (like assignments) • Performance (shipments) as a % of the average for tier

21. Example (cont’d) Discussion • Focus on enrollments because that’s what they can most impact • Tie enrollments to sales by requiring sales performance minimums as a qualifier • Add an individual component by “tiering” like territories to encourage individual effort in conjunction with the team • If annual sales (by region with nation meeting the plan) exceed the plan then their earnings are multiplied at a 2x rate. • Ex: NE region = 105% of their sales objective then their earnings are settled at 110%

22. RSM Assumptions: • Annual target earnings are $xx,xxx = $x,xxx/qtr • 80% of their time is Product 1 and 20% is Product 2 • Impact is their assignment + define TM’s (Super Territory) • Payments made quarterly • Performance (for Product 1) is based on a “Super Territory” which is comprised of their assignment + defined impact TM’s • 2 components • S.T. enrollment goal • S.T. sales objective

23. BD Recommendations Assumptions • Annual IC = $XXk = $xx,xxx/qtr • Quarterly payouts would improve effort/effectiveness Top 3 areas they can impact: • Contribution • Enrollments • DC’s • Sales • Hiring/training/developing/retaining people • Coaching

24. Example (cont’d) • This process was repeated for each position in the field organization • Ultimately this lead to plans for reps, managers, MSL’s, NAM’s, trainers, marketing and select non-field personnel

25. Non-Cash Incentives Contests • Annual National Contest • TM’s (x); RSM’s(x); NAM (x); MSL (x); BD (x) • Recognizes and rewards based on IC factors • Regional level contest(s) • April – September & October – March • Crosses years to continue efforts beyond fiscal • Recognizes and rewards activities and behaviors that lead to success (not IC factors)

26. Special Recognition Programs Purpose: • To offer a non-cash method of recognizing colleagues across the organization for efforts and are results Method: • A points program where colleagues accumulate points to be used to purchase merchandise through an on-line catalog

27. Summary • Cross functional involvement and buy-in is essential • Defined, specific and measurable goals and action steps are critical • A well thought out and coordinated IC plan will drive results • A poorly or half baked plan will demotivate and damage results • You MUST have a well thought out, tested, measurable and reported plan with sufficient frequency to keep a high visibility • If you can’t commit to doing it right don’t do it at all Where are you at and where should you be?