Evaluating a Sales Compensation Plan’s Effectiveness: SCOR³ES®

Sales CompensationLaunch & Post-LaunchRare Disease
Written By John W. Keon, Ph.D.

Given the limitations of some of the most common methods of evaluating a sales compensation plan’s effectiveness, how can life sciences companies achieve the robust examination necessary to ensure their plans are maximizing sales force motivation and, accordingly, maximizing sales?  This blog presents a statistically based diagnostic system developed by The Marketing Advantage®, Inc. to evaluate sales compensation plan effectiveness: SCOR³ES®.  Not only does SCOR³ES® identify precise areas in which improvements and/or enhancements could yield additional sales, but it has also been statistically shown to be correlated with increases in sales.

What is SCOR³ES®?

SCOR³ES® is an acronym for the six critical criteria an IC plan (Incentive Compensation plan) must meet if it is to be an effective and winning sales compensation plan, outlined below:

Let’s briefly explore each of these criteria. Below are the questions that each criterion of SCOR³ES® seeks to answer:

S SIMPLE Is the IC plan simple to understand? How simple is the relationship between performance and earnings?
C CONSISTENT WITH COMPANY OBJECTIVES Is the IC plan consistent with company and product objectives? Does the company and/or product gain its objectives when the sales force earns compensation?
O OPPORTUNITY TO ALWAYS EARN MORE Does the sales representative have an opportunity to earn more and more compensation with each improvement in performance?
R 3 REPS RULE REWARDS How much direct control does the sales representative have over his/her individual compensation?
E EQUITY Does every sales representative have an equal chance of earning the same amount of compensation?
S SAFETY NET Is the sales force—and company—protected should something outside of its control occur in the marketplace?

Critical among these six criteria is equity—nothing can undermine the credibility of an IC plan more than the IC plan being perceived as unfair.  Equity is so important that SCOR³ES® features four patent-pending tests of equity to measure each dimension of equity.

SCOR³ES® Rating System – An Increase in Rating is Correlated with an Increase in Sales

The system conducts a full diagnostic assessment on each criterion and test of equity using sophisticated analytics and then provides a calibrated rating indicating the degree to which the IC plan met that criterion. The individual ratings on each criterion are then combined into an overall plan rating quantifying the IC plan’s overall performance on SCOR³ES®.

Ratings are given on a scale from 1.0 to 5.0, with anything below 3.0 indicating corrective action should be taken. What makes these ratings so powerful is that improvements in SCOR³ES® ratings have been statistically shown to be correlated with increases in sales. 

SCOR³ES® Diagnostic

With our calibration of the ratings over the years, the SCOR³ES® Diagnostic tool was created to analyze results after the sales compensation plan has been completed. The Diagnostic indicates the areas that need improvement (if any) and how much sales could be improved with a better plan. TMA pinpoints what caused the bad ratings, ultimately providing insights into redesigning an effective sales compensation plan.

Below illustrates a partial output of a SCOR³ES® Diagnostic. This is a high-level overview of how the sales compensation plan performed on the six critical criteria. It is accompanied by a full report with compiled results, feedback on plan effectiveness, areas in need of improvement and reasoning, along with recommendations.

The overall SCOR³ES® rating of 2.8 from this specific diagnostic indicates a below passable sales compensation plan. It receives a Below Passable rating on the critical criteria including Simple, Reps Rule Rewards, and Equity. An improved plan that revises these poor ratings should see an increase in sales of 6.1% ± 1.8%.

Conclusion

A sales compensation plan has a tremendous ability to either energize sales representatives to continuously push the product or, alternatively, lead them to become complacent resulting in lost sales. Consequently, ascertaining the effectiveness of one’s sales compensation plan becomes a necessity. Our SCOR³ES® diagnostic was created and refined to do just that—provide a comprehensive evaluation of one’s sales compensation plan together with recommendations to ensure that the plan will maximize motivation and sales.

 
John W. Keon, Ph.D.
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