In its ongoing quest to overhaul compensation for sales reps, GlaxoSmithKline (NYSE:GSK) is making good on a plan disclosed last summer. The first stage, which was implemented this past winter, eliminated individual sales goals for reps (see here). Now, the drug maker is beginning the next phase, which will determine salaries and bonuses based on “selling competency, customer evaluations” and the overall performance of their business unit.
The move comes as Glaxo and other big drug makers are laying off thousands of sales reps and hope to successfully make a transition from scatter shot detailing to a smaller specialty sales force (you can read a statement here). At the same time, the pharmaceutical industry continues to fight court battles over whether reps should be paid overtime.
By changing criteria for bonuses, there has been speculation that Glaxo hopes to bolster arguments that reps should be exempt from overtime provisions of the Fair Labor Standards Act and, therefore, should not be paid overtime. Drug makers maintain reps are outside salespeople who close sales because the primary customer is the physician and reps have discretion as they go about their work.
Meanwhile, the US Supreme Court also earlier this year chose not to review lawsuits in which a lower court decided that Novartis and Schering-Plough should have paid overtime to its sales teams. The move means that still other lawsuits filed against several other drug makers are likely to yield the same outcome, possibly prompting changes in the way sales reps are compensated (back story).