PHARMACEUTICAL SALES COMPENSATION OUTLOOK FOR 2008

Tools

PHARMACEUTICAL SALES COMPENSATION OUTLOOK FOR 2008

Surveys have shown that the pharmaceutical industry has been expanding its sales force at record rates over the last 5 years. The pharmaceutical industry is also looking to grow its sales force in 2008. In fact 31 percent of the biotech companies and 19 percent of the specialty pharma companies surveyed planned to grow "a great deal" and another 48 percent and 24 percent respectively, planned to grow "steadily" over the course of 2007.

Two out of three surveyed companies plan on introducing new pharmaceutical products in 2008. With this growth and new product launches the companies are also looking to "improve sales-force productivity". In 2008, companies are also reporting that they expect nearly every type of pharma sales rep to make fewer calls, which is surprising. On average, sales reps are now expected to make 8 calls a day, down from nine. This change probably means that pharmaceutical companies are being more realistic in their expectations as they are emphasizing the need for quality interaction with physicians.

The pharmaceutical industry has traditionally been a sales-dominated business, in contrast to the consumer good industry which is dominated by marketing functions. With the focus of the pharmaceutical industry being on its sales force, starting salaries for entry-level sales rep is significantly higher than for a beginning salesperson in other industries. In fact, once incentive compensation is factored in, the average entry-level pharmaceutical sales rep earns 32% more than their counterparts in other industries. The mix of base salary and incentive pay is shaped by an organization's competitive objectives. Generally in 2006, companies aimed to make the base salary about 78% of total compensation, the rest is incentive compensation.

The good news for pharmaceutical sales people is that the total compensation has continued to grow for them. The average sales rep is estimated to earn $94,200 in total compensation in 2007, compared with $87,500 in 2006. Increases were particularly marked among specialty reps. The average first year level specialty rep total cash compensation jumped from $75,600 in 2006 to $82,100 in 2006. Pharmaceutical companies are also using a variety of additional cash and non-cash rewards in an effort to recognize extraordinary sales efforts. These non-cash rewards, in fact, often have greater impact than the formal incentive-compensation plan in motivating their sales staff. Companies appear to be increasing other benefits such as upgrades in car options and single rooms at sales meetings.