Susan M. Snyder, Hay Group
Marc Wallace, Hay Group
November 15, 2011

1
2
About Hay Group
Increasing R&D effectiveness
3 Sales force compensation
© 2011 Hay Group. All rights reserved 2

01

We help organizations work.
Reward Services
Leadership and
Talent
Building Effective
Organizations
Hay Group
Insight
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86
Offices in 47 countries
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2200
Employees worldwide
7000
International clients
$450 million
Sales
5

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Putting 60 years of Hay Group expertise at your fingertips
Powerful and intuitive tools available online or electronically
Competitively priced
Created specifically for HR professionals and line managers
Support recurring processes across the employee lifecycle
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http://www.haygroup.com/surveys/Best_Companies_2011/
2011 BEST COMPANIES FOR LEADERSHIP SURVEY
© 2011 Hay Group. All rights reserved 8

02

Cost to value
Reduced tolerance for risk
Generics
Greater regulation
Cost pressure
Price control
Longer lead time for product development
Patent expiration
Decline in R&D productivity
© 2011 Hay Group. All rights reserved 10

The market share of biotech drugs is continuously increasing
2000
9%
2014E
23%
77%
91%
Biotech Medicines Conventional Medicines Biotech Medicines Conventional Medicines
The share of biotech drug sales is expected to reach almost a quarter of total drug consumption by 2014, compared to less than one-tenth in 2000
© 2011 Hay Group. All rights reserved 11


The industry appears to have turned the corner, though it has not returned to pre-crisis levels of normalcy

Across the established biotech centers, revenues grew by 8% — identical to growth in 2009 after adjusting for the
Genentech acquisition, but well below the 12% seen in 2008 or the high doubledigit growth rates the industry was able to deliver in many prior years
© 2011 Hay Group. All rights reserved
90
60
30
0
Global Biotechnology Revenues (USD bn)
2009 2010
180 000
120 000
60 000
0
Global Biotechnology Employees
172 690
178 750
2009 2010
Note: Figures pertain to 622 public companies
Source: Ernst & Young Report 2011 12

Global Biotechnology Net Income (USD bn) Global Biotechnology R&D Exp. (USD bn)
5 25
4 20
3 15
2 10
1 5
0 0
2009 2010 2009 2010

Large numbers of firms undertook drastic cost-cutting measures to survive. These efforts resulted in a much stronger bottom line, propelling a sector that has bled red ink for most of its history to unprecedented levels of aggregate profitability

But while the focus on operating efficiency has its benefits, it has come at a high cost. In an industry where R&D is by far the biggest expenditure, it was inevitable that deep spending cuts would lead companies to slash R&D expenditures
–
R&D expenses, which had plummeted by 21% in 2009, grew by a modest 2% in 2010 — a positive development, but far below the investments that biotech companies have historically made in innovation. In
2009, 64% of US companies and 55% of European companies decreased their R&D spend; in 2010, those numbers fell to 49% and 45%, respectively
Note: Figures pertain to 622 public companies
© 2011 Hay Group. All rights reserved
Source: Ernst & Young Report 2011 13

© 2011 Hay Group. All rights reserved
R&D productivity ratio =
New drug approvals of major players
Total R&D spend (USDbn) of major players
14

© 2011 Hay Group. All rights reserved 15

© 2011 Hay Group. All rights reserved 16

Organizations aren’t leveraging the human talent that they have
 Scientists are motivated in unique ways, and must be led accordingly
 Most R&D leaders do not create engaging climates that energize their teams
 While R&D leaders must demonstrate technical expertise, many have not expanded their leadership portfolio to include providing alignment, feedback, and collaboration
 Many R&D professionals do not believe that performance is linked to recognition; instead, they think that mediocrity is tolerated
 Instead of enabling innovation, organizations are inadvertently putting hurdles in place by allowing slow decision-making, risk-aversion, and lack of collaboration
© 2011 Hay Group. All rights reserved 17

Scientists enjoy solving problems, need recognition, and tend to be loners
 Avoid anything that puts barriers between scientists, regardless of their title or level of expertise
 Facilitate free flow of information and iterative feedback loops among scientists
 Create opportunities for collaboration, both formally and informally
 Provide rewards in the form of recognition, reputation and respect (including from top management, peers inside and outside the company, and patients)
 Allow the opportunity to present at conferences and to customers to build their own and the company’s reputation
 Clarify and celebrate the link between their work and its practical impact on the business and patients
18 © 2011 Hay Group. All rights reserved

 Climate indicates how energizing the work environment is for employees
 It accounts for up to 30 percent of the variance in key performance measures
 Up to 70 percent of the variance in climate is driven by how leaders behave
 Fully engaged employees are 2.5 times more likely to exceed performance expectations than their ‘disengaged’ colleagues
Leadership styles
Organizational climate
Aligned and motivated employees
50-70% of variance in organizational climate can be explained by differences in leadership style
Up to 30% of variance in results can be explained by differences in organizational climate
© 2011 Hay Group. All rights reserved
Results
19

How does it feel to be in R&D in large life science organizations?
 67% report that their current environment is tolerable (15%) or de-motivating (52%)
 These results are worse than those reported by other LS functions except Manufacturing
 Research is worse off than Development, and when compared to other industries, ranks at the bottom of the list
20 © 2011 Hay Group. All rights reserved

Organizational climate drives performance
 Good working environments – or climates – energize and focus people to do their best.
Mediocre climates dampen motivation and diminish performance
 Research shows that these aspects of climate have the biggest impact on performance:
Flexibility Responsibility Standards Rewards Clarity
Team commitment
 No unnecessary rules, procedures or policies.
New ideas are easily accepted
 Employees are given authority to accomplish tasks without constantly checking for approval
 Challenging but attainable goals are set for the organization and its employees
 Good performance is recognized and rewarded
 People know what is expected of them and how they contribute to organization goals
 People are proud to belong to the organization
… and of all the things that influence climate, leaders have the biggest influence
© 2011 Hay Group. All rights reserved 21

Only 17% are in High Performance climates and firing on all cylinders
16% are in Energizing situations, but they are lacking the Clarity that drives business results
15% are getting by in Tolerable climates, but Flexibility (innovation) drops along with Clarity and Team
Commitment (collaboration)
© 2011 Hay Group. All rights reserved
52% of the sample are disengaged, struggling across all dimensions, and De-Motivated
22

Company 1 Company 2
Products approved, 2007
– July 2011: 4
Products approved, 2007
– July 2011: 9
More leaders creating positive climate correlates with R&D productivity
© 2011 Hay Group. All rights reserved 23

Leadership strength is defined by flexibility
 Leaders who can tailor their behavior, or leadership styles, to a situation create positive climates
 Those who do not create negative climates
 Our research database, containing assessments on over 550,000 individuals from over 4,900 organizations, shows that the following styles have the biggest impact on climate
Coercive
 Achieving immediate compliance
Authoritative
 Providing long term direction and vision
Affiliative
 Creating harmony and avoiding conflict
Democratic
 Building commitment and encouraging new ideas
Pacesetting Coaching
 Accomplishing tasks to high standards
 Supporting long term development
© 2011 Hay Group. All rights reserved
…
24

Leadership differences in R&D
 Outstanding R&D leaders maintain their technical credibility and go beyond it
 Provide direction and feedback
 Engage their teams in problem-solving and collaboration
Leadership Styles in High Performance Climates
(feedback from 124 direct reports on 26 leaders)
Leadership Styles in De-Motivating Climates
(feedback from 453 direct reports on 77 leaders)
© 2011 Hay Group. All rights reserved 25

Company 1 Company 2
Products approved, 2007
– July 2011: 4
Products approved, 2007
– July 2011: 9
Leaders who use a broad range of styles create more positive climate…. which correlates with R&D productivity
© 2011 Hay Group. All rights reserved 26

Work environments have to turn motivation into productivity
Engagement
Employee effectiveness
Enablement
© 2011 Hay Group. All rights reserved 27

and
High engagement only
High engagement + high enablement
Employee performance
Increase in employees above performance expectations
Employee retention
Reduction in turnover rates
Customer satisfaction
Customer satisfaction rates
Financial success
Revenue growth
10% -40% 71% x2.5
50% -54% 89%
Based on linkage case studies using
Hay Group’s global normative database x4.5
© 2011 Hay Group. All rights reserved 28

Lack of feedback and development
I have a good idea of the possible career paths available to me
Rate your opportunities for learning and development
Rate your immediate supervisor on providing you with clear and regular feedback
Rate your immediate supervisor on coaching you in your development
Training is available on an ongoing basis so that I can continue my learning and development
Rate your company on providing training so that you can do your present job well
0
© 2011 Hay Group. All rights reserved
20
R&D Norm
42
59
49
57
62
Life Science Norm
71
55
64
65
73
60
68
40
% Favorable
60 80 100
29

Lack of focus on – and recognition for – outstanding performance
R&D Norm Life Science Norm
The better my performance, the better my opportunity for career advancement
46
58
The better my performance, the better my pay will be
45
56
Poor performance is usually not tolerated at the company
0 20
47
40
% Favorable
60
60
80
© 2011 Hay Group. All rights reserved
100
30

Obstacles to innovation and collaboration
Employees are encouraged to take reasonable risks (e.g., try new ideas or new ways of doing things) in an attempt to increase the effectiveness of the organization
Decisions are made without undue delay
Rate cooperation among employees where you work or within your location
This company encourages cooperation and sharing of ideas and resources across the company
My work group receives high quality support from other units on which we depend
0
© 2011 Hay Group. All rights reserved
20
R&D Norm
52
Life Science Norm
62
48
61
51
58
60
66
40
% Favorable
60
70
78
80
31
100

Our prescription
 Clarify the definition of outstanding performance
– for individuals and for the function
 Determine the critical few metrics that align to that definition of excellence
 Align recognition and reward to those metrics, and give clear feedback about them on an ongoing basis
 Build leadership capability to broaden beyond technical excellence, with special focus on developing the ability to provide feedback and to coach
 Differentiate technical leadership from project / program leadership, and establish / communicate a project leadership career track
 Develop matrix leadership skills in program management



Enable innovation
Push decision-making to the lowest capable level
Remove obstacles to collaboration, especially across boundaries
© 2011 Hay Group. All rights reserved 32

03

Hay Group Managed Markets SFE research / Pharma Executive article
Account Managment Effectiveness
100%
80%
60%
40%
20%
0%
Focused on performance Creates results for customers
Strategy is understood Culture is well managed
Optimistic Confident Not sure
© 2011 Hay Group. All rights reserved 35

Hay Group Managed Markets SFE research / Pharma Executive article
60%
Strength of Payer Relationships
Please select the best relationship you have achieved with national and regional payers
.
50%
40%
30%
20%
10%
0%
Preferred Vendor
National Payers
Value Add
Regional Payers
Trusted Advisor
© 2011 Hay Group. All rights reserved 36

Hay Group Managed Markets SFE research / Pharma Executive article
Neglecting New Customer Relationships
Percentage of companies that HAVE NOT attempted a B2B reltionship
Employers / Unions
Group Practices
Hospitals
Retailers
Wholesalers / Trade
0% 25% 50%
Percentage of Responses
75% 100%
© 2011 Hay Group. All rights reserved 37

Hay Group Managed Markets SFE research / Pharma Executive article
Gaps in Organizational Invesments
Please select the best descriptionof your priorities and investments.
100%
80%
60%
40%
20%
0%
Priority
Invesments
Important, but No
Investments
Low Priority
Critical for B2B partnerships and value creation !!
© 2011 Hay Group. All rights reserved 38

Brand
Integrated
Indications &
Offers
Call center support
Products
Collaborative
Research
Services
Identify opportunities
People
Develop solution
Analytic and presentation tools
Cost and
Quality
Guarantees
Pricing guardrails and oversight
Tailor value proposition
Negotiate and close
Identify client support team
Track ‘promised value’ measures
Conduct account reviews
Contract renewal tickler
Processes
Financials
© 2011 Hay Group. All rights reserved
Roles for sales and customer service
Measures, reminders and cross sells
Treatment
Compliance
Integrate with CRM
Sustain &
Grow Mutual
Market Share
39

High
Difference
(from competitors)
$
$
Credible
Partner
$
Deal Killers
Low
$
Irrelevant
Low
Importance
(to Customers)
© 2011 Hay Group. All rights reserved
High Impact
$
High
Winners
Door Openers
40

1.
Think difference, importance and economic impact
2.
Surprise your customers with openness
3.
Measure your partnership strength
4.
Invest in leadership, teams and processes
5.
Cover the healthcare ecosystem
© 2011 Hay Group. All rights reserved 42

•
•
•
•
In 2011, Hay Group observed that clients focused on:
Reflecting roles
Reflecting strategy
Linking pay to organizational performance
Streamlining plans for simplicity
•
•
We did NOT see:
Routine updates of the plan
Redesigning to better reflect incumbent impact
This is reflected in the
2011 results as well.
© 2011 Hay Group. All rights reserved 43

•
•
•
•
Based on the 2012 results, we expect that:
•
•
•
Sales compensation cost will be under increasing scrutiny
Trends in solution selling will temper leverage
Reviewing strategy and defining the implications for the sales plan will be emphasized
Traditional challenges will be addressed with broader redesign:
Goal setting
Long sales cycles
Team sales
2012 will focus on the link between growth and incentives
© 2011 Hay Group. All rights reserved 44

Rule #1: If you haven’t defined your sales roles, you can’t design sales incentives
Familiar friend
Farmer
Trusted advisor
Transactional
Field Rep
Hunter
Deal maker
Consultative
© 2011 Hay Group. All rights reserved 45

Attribute
1. Sales Strategy
Level One Questions (Triage)
Is the sales strategy clear, consistent and well understood?
2. Process Does the sales process meet business objectives and create customer value?
3. Roles &
Competencies
Are sales roles, competency models and job definitions comprehensive and actionable?
4. Size & Structure Is the sales force designed for optimal effectiveness and efficiency?
5. Motivation Are sales people motivated by an appropriate mix of incentives and rewards?
6. Management Is sales management disciplined and focused on performance?
7. Culture Is the required sales culture defined, cultivated and managed?
8. Implementation Is seamless integration achieved within sales and across functions?
© 2011 Hay Group. All rights reserved 46


Most organizations use 1-3 metrics.
 The number of metrics remained consistent from last year 70% to this year 73%
Most organizations have between 1-4 sales incentive plans which are often differentiated by role
Number of different sales incentive plans
Performance metrics
11 +
14%
6-10 Plans
10%
5 Plans
6%
4 Plans
10%
3 Plans
10%
2 Plans
14%
1 Plans
36%
5 metrics
4%
4 metrics
13%
6 metrics or more
10%
1 metrics
15%
2 metrics
28%
3 metrics
30%
47 © 2011 Hay Group. All rights reserved

Annual eligibility
Component
Sales Representatives
Accounts Managers
Channel Managers
Inside Sales
1 st Line Sales Managers

Eligibility for plans remain high.
 Chemicals and Insurance/ Financial
Services have the highest predominance of Base Salary with incentives than other sectors.
 Plans for Account Managers and
Sales Reps were similar in components.
Percent of organizations offering plans
90%
73%
32%
41%
66%
Plan type
Component
Base salary with incentive tied to one or more performance metrics
Base salary with bonus (e.g. discretionary or profit-sharing)
Commission-based incentives (regardless of base salary/draw)
Other
Percent of organizations offering plans
62%
4%
27%
8%
© 2011 Hay Group. All rights reserved 48

Plan Components
Individual Performance
District Performance
Region Performance
Subsidiary Performance
Division Performance
Corporate Performance
Team Performance
Other
Prevalence
75%
8%
8%
3%
18%
17%
16%
10%
© 2011 Hay Group. All rights reserved
100%
47%
50%
60%
45%
25%
32%
84%
Median
Value

We saw a slight dip in Individual prevalence from 82% to 75% though most organizations still make that a majority of their plan.

Other remains low in prevalence but has a high value in the plan assigned to it.
 The splits between the organization level have more to do with the specific industry.
P75 Value P25 Value
100%
100%
80%
100%
80%
33%
85%
100%
60%
33%
20%
20%
20%
15%
20%
48%
49


Most organizations target above market performance for sales reps.
 The distribution of incentives paid was fairly normal for this past year.
TTC Pay Philosophy for Sales
Reps
Below P40
0%
P40-P50
5%
P50-P60
76%
P60-P75
17%
Above P75
2%
Recent fiscal year incentives
Below Threshold
Threshold to target
Target to 1.5x target
Outstanding and above
P50 Value
5%
40%
30%
5%
P75 Value
12%
69%
55%
16%
P25 Value
0%
14%
15%
0%
Average
11%
42%
35%
12%
© 2011 Hay Group. All rights reserved 50

•
•
•
•
Common goal-setting challenges:
High demand volatility
Long selling cycles
Cycling
Variance across channels (heavy lifting)
© 2011 Hay Group. All rights reserved 51

Many organizations – and industries – struggle with exceedingly high volatility of demand. This can frequently make it a challenge to set quality goals.
Common approach
Ranking
Strategic objectives
Rolling average
Positives
• Removes goal-setting entirely from the process
• Allows for some common sense
• Focuses more on the rational trend
Negatives
• Dilutes the link between pay and performance
• Common sense is not always that common
• Pay will lag sustained performance
– for good and bad
© 2011 Hay Group. All rights reserved 52

If the time from initiation to close is longer than the performance period of the incentive plan, it is challenging to define a goal.
Common approach
Milestones
Corporate Component
Positives
• Allows recognition of sales activities
• Many long selling cycles have significant non-selling activities.
• Measuring at a higher level reflects overall success
Negatives
• Potentially pays for activities, not end results.
• Assumes that the role is less selling and more marketing management
It is important to consider:
• The frequency of opportunities
• Where the incumbent has the most impact on the sales
53 © 2011 Hay Group. All rights reserved

Cycling occurs when a good performance sets up bad performance and vice-versa.
Common approach
Rolling average
Individual goals
Different measures
Positives
• Smoothes variance
• Enforces ownership mentality in the territory or channel
• Focus on area where there is more impact
Negatives
• May allow for some coasting
• Requires increased planning and sales administration.
• Potential challenge for perceived plan equity.
© 2011 Hay Group. All rights reserved 54

Channels are so different that some reps have a windfall, others have an unachievable target.
Common approach
Critical success factors
Differentiated measures
Positives Negatives
• Allows for flexibility within a strategic framework.
• Additional administration
• Best matches heavy lifting • Need to identify other measures.
© 2011 Hay Group. All rights reserved 55

Susan M. Snyder, Hay Group
 Senior Principal and US Director, Leadership & Talent in Life Sciences
 Phone: (914) 659 - 7781
 Susan.Snyder@haygroup.com
Marc Wallace, Hay Group
 Vice President and US Director, Sales Force Compensation
 Phone: (312) 228 - 1816
 Marc.Wallace@haygroup.com
© 2011 Hay Group. All rights reserved 56

Susan M. Snyder, Hay Group
Senior Principal & US Director, Life Sciences Leadership &
Talent
Phone: (914) 659 - 7781
Susan.Snyder@haygroup.com
Marc Wallace, Hay Group
Vice President & US Director, Sales Force Compensation
Phone: (312) 228 - 1816
Marc.Wallace@haygroup.com