GlaxoSmithKline’s 2012 Corporate Integrity Agreement made mandatory the company’s “Patient First” program (or a “substantially equivalent” program), under which GSK agreed not to provide incentive compensation or discipline to its sales reps based upon the volume of sales of GSK products. This past week, Bloomberg reports that GSK “is considering changes to its compensation model for sales staff.” The company is “looking into ‘more comprehensive options to simplify the Patient First program’ and will provide a report within a month,” states Bloomberg.
Patient First Program
In 2011, GSK became “the first pharmaceutical company to cut the tie linking the pay of our prescriber customer facing sales representatives in the US to the number of prescriptions issued,” notes their Patient First website. The company explains:
Under our new approach, we reward these sales representatives primarily based on three factors: selling competency, customer evaluations, and the overall operating profit of our North America Pharmaceuticals business. We now require that our sales representatives not only pass competency tests on the medicines and disease states they cover, but we also require that they demonstrate a deeper understanding for the business model of their customers so they can better anticipate and address their needs.
GSK rolled out the Patient First program in 150 countries earlier this year.
Changes to Compensation Model
The consequences of GSK’s sales model seem to be more of a cautionary tale to other companies than anything else.
In late 2014, GSK announced that they were cutting 900 R&D jobs in the Research Triangle Park site in North Carolina as part of a consolidation effort by the company. GSK’s Advair asthma medication is facing increased competition, and the company is trying to establish new respiratory drugs in the U.S. to help replace the lost sales of Advair, according to the Bloomberg article. Furthermore, in February, GSK replaced its head of U.S. pharmaceutical operations, Dierdre Connelly, who worked for six years as president for North America, with Jack Bailey. Bailey most recently served as senior vice president for policy, payers, and vaccines at GSK.
Having just served one month at the top, Bailey is looking to change the sales rep compensation program. The company is taking a hiatus from its sales call “simulation” based bonuses, and will be working to streamline its Patient First program. Wall Street Journal obtained a copy of GSK’s memo to its sales reps, available here, though the memo is rather short on details, especially company plans going forward.
“The changes underscore the pressure on Chief Executive Officer Andrew Witty to turn around the U.S. business, which accounts for almost a third of Glaxo’s sales,” Bloomberg writes. “Shares of the company have slumped about 8 percent in the past year, and fourth-quarter earnings declined from a year earlier.”
It will be interesting to follow GSK’s adjustments to their compensation model, for a couple of reasons.
First, the company is legally bound to their Patient First program, eliminating incentive payments tied to the volume of sales in a sale’s rep’s region. In June of 2014, GSK settled claims under state consumer protection, and agreed to promotional restrictions above and beyond their initial CIA, including the obligation to continue its Patient First Program at least through March 2019.
Second, while the company has some leeway in finding an incentive program not based on sales, GSK is exploring uncharted territory here. No other company has agreed to sever sales rep bonuses from their sales volume. This is part of any sales-based industry, and makes sense from the sales representative’s perspective–where rejection from doctors is almost part of the job description and incentive pay keeps the workers in the field motivated. GSK will be forced to create a very innovative compensation program to counter such an established model.
GSK has to do some major sole searching because the organization is a complete mess!! Many very good GSK employees lost jobs because of past evils combined with incompetent leadership at the very top of the company.