Top Sales Compensation Trends for 2024
Alexander Group Study Findings Show Four Key Trends
Life sciences and analytical instruments companies’ tailwinds are now headwinds. Customers are being exceedingly cautious, National Institutes of Health (NIH) budgets are being cut, the China market is shrinking and sales teams are struggling to meet original 2023 targets. Some analysts suggest the instrument market is like the genomics bubble in the early 2000s, which took years for the market to rebound. Others are more positive, seeing favorable signs moving into 2024.
No matter the outlook, organizations are still looking to adapt and evolve their sales compensation program. Alexander Group conducted two recent studies, a global Sales Compensation Hot Topics Survey and Five Principles for Effective Talent Management. The sales compensation survey suggests 62% of companies are increasing their sales compensation budgets YOY. The talent study reveals that the number one reason why candidates accept offers (57%) or why employees leave their current organization (48%) is pay. Total pay is impacted through a myriad of different factors, including target pay (budget), actual pay (performance) and plan mechanics.
Based on the study findings and recent client work, here are the key sales compensation trends life sciences companies are considering for 2024:
1. Total Pay Levels (Base, Incentive)
62% of life sciences companies are sourcing market pay levels to inform annual pay levels, leaving a significant group of organizations who are failing to stay informed on their pay competitiveness. This is potentially dangerous as the “race for talent” still wages on for specialized sellers, including end-market or product-centric candidates.
What To Do: Source the latest sales compensation benchmarking information (base, incentive, mix). Identify the appropriate pay philosophy (e.g., 50th percentile, 75th percentile). Identify gaps in philosophy and make changes, prioritizing your at-risk team members who are strong performers yet paid below benchmark.
75% of life sciences companies use thresholds in their primary field sales representative plans. This leaves a small cohort of organizations who pay from dollar one, putting money into their team’s pocket quicker. It’s more common to see higher thresholds in consumable-oriented vendors while we see lower, soft or no thresholds in instrument-oriented sales teams. Paired with the difficult year life sciences is facing, many organizations have considered lowering the threshold or guaranteeing pay.
What To Do: Review quota distributions to see how sales team members’ performance is distributed. If you have more than 10% of your sellers below or at threshold, there is a problem with your plan or quotas. If your company is instrument-oriented, consider removing the threshold or creating a soft threshold (i.e., pay from dollar one, but at a lower rate). If your organization is consumable-oriented, contemplate slightly lowering your threshold.
3. Above Goal Performance
Is paying top performers important to your company? Life sciences companies must pay 2.5x to 3.0x leverage to be competitive in their primary customer-facing sales team plans (2.6x on average). This means life sciences companies should pay their highest performers (top 10 percentile of team members) 260% more than their median performers. Paying high performers is a great way to fend off unwanted competitive solicitors who offer higher pay packages (TTC, base or LTIs), but uncompetitive upside.
What To Do: Review your implied leverage within your plan designs (i.e., what is the difference between your top 10 percentile performer incentive earned to median performer). If you’re below 2.6x, then your above-goal accelerators are uncompetitive. Update your plan mechanics to increase above goal acceleration while costing for financial feasibility.
In 2023, 21% of companies have or are considering changing their quotas mid-year. This is a departure from sales compensation center practices of the past. Historically, only 5% of companies under-assigned quotas. This year, 15% of organizations are under-assigning quotas. Life sciences companies are doing this to ensure they don’t lose the right talent in a tough year. In our Talent Study, profitable revenue growth leaders drove higher employee satisfaction (positive correlation to customer satisfaction) by being more flexible and having strong employee engagement initiatives.
What To Do: Similar to the previous two trends, review your quota distributions. If you see distributions with a median that is well below 100% for any specific sales teams or regions, consider making changes to quotas. Some life sciences companies have gone as far as guaranteeing 100% of their target incentive in 1H of 2023 because of quota issues. If the market doesn’t rebound in 2H of 2023, consider moving to bi-annual performance periods for 2024.
The most important takeaway from our recent studies – profitable, high-growth life sciences companies are continuously improving their sales compensation programs and plan designs. Organizations that are proactive in their design changes, creating a well-thought case for change, positively impact their top-line growth in the short term while driving increased margins longer-term.