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Quota-Based Compensation Plans Outpace Ranking Plans
Date:9/30/2008

ZS Associates study shows quota-based plans most popular among makers of

pharmaceuticals/biotech, medical device and technology products

EVANSTON, Ill., Sept. 30 /PRNewswire/ -- The third annual Incentive Practices Research (IPR) study, conducted by global sales and marketing consulting firm ZS Associates (http://www.zsassociates.com), finds that an increasing number of companies - in pharmaceutical/biotech, medical products and high technology industries - are favoring quota-based compensation plans over ranking plans.

Ranking plans pay sales representatives and managers based on how they performed compared to their peers. These plans thrived during the late 1990s, especially in the pharmaceutical industry, as a way of managing compensation costs, but have steadily declined in popularity. ZS Associates' research has found that(1):

-- 73 percent of pharmaceutical/biotech companies surveyed use quota-based plans, while 20 percent use ranking plans

-- 85 percent of medical device companies surveyed use quota-based plans, while 21 percent use ranking plans

-- 89 percent of high tech companies surveyed use quota-based plans, while 26 percent use ranking plans

Stephen Redden, principal and leader of the Incentive Compensation Practice at ZS Associates, advises executives to deploy ranking plans cautiously, as they can promote unproductive competition between salespeople. "Knowing your sales compensation cost with certainty is an important objective, but using ranking plans to achieve this objective is not recommended," says Redden. "There are ways to structure quota-based plans - and model the costs - that can provide accurate compensation cost estimates without increasing the internal competition in the field."

Quota Fairness a Top Concern

The survey also indicates that quota-setting fairness is one of the most pressing concerns and cuts across all industries.

Chad Albrecht, an associate principal at ZS and the lead on the IPR survey, says incentive management teams must first identify the most appropriate metrics and use those measures to set quotas that account for the different earning opportunities that occur across varied territories.

"In our experience, we have found that very few companies take the time to determine the true market potential for their products. They also infrequently research and purchase the data on the many variables that can affect sales," says Albrecht. "As our study shows, quota-based plans are gaining in usage. As sales leaders implement them, they should remember that, while measuring disparities between territories when setting quotas is often a daunting process, it is well worth the effort. You want to motivate, and one of the most critical requirements for motivation is a belief that salespeople are being treated fairly with the quota they have been given."

Long-Term Incentives May be on the Rise

After several years as a popular retention tool, long-term incentives, notably stock options, have declined to 36 percent among reporting medical products companies as a result of the Financial Accounting Standards Board (FASB) requirement that options be expensed. At the same time, a majority of high tech companies (63 percent) still use options-based long-term incentives. Yet, companies in both industries cited it as one of the most effective reward tools.

This suggests that long-term incentives could be poised to make a comeback. "Long-term incentives keep your top salespeople motivated and provide an added incentive for them to stay with you," Albrecht said. "Limited stock options notwithstanding, companies would do well to use tools like long-term cash incentives to retain their reps and keep the reps' clients with the company."

Please contact ZS Associates for more information or for details about participating in the 2009 survey.

About ZS Associates

ZS Associates is a global management consulting firm specializing in sales and marketing consulting, capability building, and outsourcing. The firm today has more than 1,000 professionals in 17 offices around the world. It has assisted more than 700 clients in 70 countries. ZS consultants combine deep expertise in sales and marketing with rigorous, fact-based analysis to help business leaders develop and implement effective sales and marketing strategies.

As the largest global consulting firm focused on sales and marketing, ZS Associates has experience across a broad range of industries, including pharmaceuticals, biotechnology, medical products and services, high-tech, telecommunications, transportation, consumer products and financial services.

For more information on ZS Associates, call +1 847.492.3602 or visit http://www.zsassociates.com.

(1) Some statistics add up to greater than 100% due either to multiple responses from the same company and/or business unit, or hybrid plans where people force rank based on quota attainment.
Available Topic Expert(s): For information on the listed expert(s), click appropriate link. Chad Albrecht http://profnet.prnewswire.com/Subscriber/ExpertProfile.aspx?ei=81047 Stephen Redden http://profnet.prnewswire.com/Subscriber/ExpertProfile.aspx?ei=81139


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SOURCE ZS Associates
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