How to Adjust Your Sales Compensation Plan for the Omicron Variant
The discovery of the Omicron variant of the coronavirus last week sent shockwaves across a number of institutions, from the stock market seeing one of its worst days this year to the introduction of new mandates and travel restrictions. The severity and impact of the Omicron variant is still being assessed, forcing biopharma companies to grapple with immense uncertainty during one of the most important planning periods of the year, including 2022 sales incentive compensation planning. Nevertheless, there are now 20 months of learnings from COVID-19 as well as 20 months of data that can shed light into how companies can prepare for the Omicron variant—whatever form the impact may take. This blog post will explore two strategies that companies can utilize to mitigate both the uncertainty and impact of the Omicron variant.
Strategy 1: Index Sales Relative to Base Period & Institute Contingency Plan
The first strategy biopharma companies can utilize is to index therapeutic class sales relative to a base period (most likely September through November of this year for a quarterly plan period) and, should therapeutic class sales fall below a certain amount relative to that base period, trigger a contingency plan that outlines an alternative payout methodology. Typically we recommend a national-level contingency plan, in which national conditions trigger the contingency plan for all territories or none. However, in order to address the differing impact of the variant across territories, we are recommending a territory-level contingency plan, in which territory conditions trigger the contingency plan for each individual territory.
Trigger
Based on national conditions
Geographies Affected
All territories in the sales force if the contingency plan triggers
Trigger
Based on territory conditions
Geographies Affected
Each territory individually if its contingency plan triggers
For products that have competitive data down to the territory-level, the contingency plan will trigger should therapeutic class sales relative to the defined base period fall below a certain amount. Then, the impacted territories for which the contingency plan triggered will be made whole. For example, if a territory’s therapeutic class sales during the plan period fall to 80% of base period sales, then that territory’s current plan period sales will be multiplied by 125% (i.e., 100%/80%) in order to make the territory whole. The individual details of the contingency plan (i.e., where the trigger should be set, how payout against the adjusted attainment should be awarded, etc.) depend on a number of product characteristics, including life cycle stage, difficulty of sell-in, etc.
However, some products are much more difficult to index and require an adjustment in the methodology. For example, for a rare disease product, the indexing can be done utilizing ICD-10 codes (i.e., if sales within an ICD-10 code fall below base period sales, then the contingency plan triggers). For a portfolio of products for which there is no competitive data, the indexing can be done utilizing portfolio sales (i.e., if all products in the portfolio in a region fall below base period sales, then the contingency plan triggers).
Strategy 2: Gauge Impact Using Historic Data
For some products, indexing sales may not be an option, such as medical devices, dental supplies, etc. In these cases, there may be no better basis with which to assess the impact of the Omicron variant than to use historic COVID-19 data and actual sales. For example, track sales versus cases per capita by county (where available) over the last 20 months, and create a sales adjustment based on the results (note: a lag factor will have to be included). What was the sales impact when there were 50 cases per 100,000 in county A versus county B? How were sales affected when these 50 cases per 100,000 grew to 100 cases per 100,000 in county A versus county B? Current sales can be adjusted according to what the analysis shows.
Cases per capita is just one of the many metrics through which this sales adjustment can be created; other available metrics include average daily cases, hospitalization rates, etc. Though such an analysis was not possible early in the pandemic, we now have 20 months of data that can be utilized to shed light into the sales impact to expect should the Omicron variant hit hard.
Conclusion
Though there are still so many unknowns regarding the Omicron variant, there are sales incentive compensation strategies biopharma companies can implement to prepare for whatever impact the Omicron variant may have. For products for which indexing is possible, companies can implement a contingency plan that makes territories whole should therapeutic class sales or portfolio sales, etc. fall below a certain amount of base period sales. For products for which indexing is not possible, companies can use the last 20 months of COVID-19 sales data to develop a sales adjustment to gauge what the impact will be. In this way, companies can mitigate the uncertainty surrounding the Omicron variant and still get their sales compensation plans out on time in 2022.
