How you reward Key Account Managers is seen as a critical ingredient in the overall success of any Key Account Management KAM strategy.
The role of a key account manager requires effective coordination of a web of complex activities.
The idea behind a well-structured Key Account Management (KAM) reward program, is that the recipient should be compensated in alignment with the value they bring to their organisation’s customer engagement efforts and their individual performance. So, why shouldn’t KAMs be compensated for the time they invest in each account?
Rewards can be given differently across each individual organisation depending on the role of the KAM. If the organisation has filled a KAM position with someone who has pervious worked as a traditional salesperson, the reward scheme usually falls under a cash bonus depending on sales. The organisation feels obligated to give out these awards because it’s what the sales person is used to.
According to a recent report “Key Account Management: Performance, Measurement, and Rewards”, only 46% of companies have a different reward structure for KAMs from that for sales personnel.
Types of awards:
Companies use a working assumption that everyone values money, although psychology has shown that is not always the case. However, companies tend to adopt this assumption because it makes the application of rewards simpler. Reward schemes fall into three categories:
1. Bonus (cash):
Cash bonuses are offered to key account managers usually after a year. However, depending on the specific role these bonuses can be given out quarterly. Cash bonuses are among the most popular reward given as they can be paid out of the company’s current earnings.
2. Salary increase:
A high performing KAM could be rewarded with a salary increase for his/her efforts within the company. Showing that the company is stable enough to reward a salary increase motivates other KAMs within the organization to improve their performance. For qualified candidates in a similar role, both internal and external, this reward scheme encourages them to apply for the opportunity to change over into an account management position which they may have shied away before.
3. Non-financial recognition:
These types of rewards cover a wide range of additional benefits that vary in cost depending on the specific award. These awards can include holidays, educational support, providing a company dinner or invitations to special company events. These awards can be personal if only given to the key account manager or they can be business based if given to the KAM and the members of the account team. For example, offering educational support through mentoring can add great value to the individual and in turn, they become more of an asset to the organization.
There are two ways to measure performance, first being inputs (the inputs to achieving the results) and secondly outputs (the results gained from the inputs). Pharma/ biotech companies who are making the shift to strategic account management would measure the inputs to represent KAM performance. Where traditional sales reps would focus on volume of sales, Key Account Managers focus on creating long-term strategic relationships with customers and should be rewarded accordingly.
Using either method of performance measurement has its advantages and disadvantages. Measuring ”the results only” approach, could potentially have negative impact on the stakeholders when the KAM’s goal is to meet targets to maximize sales rather than optimise sales. However, calculating the results alone is easily determined and companies are more comfortable in rewarding KAMs a share of the profit received from that account.
Professor Nigel Piercy (Enhancing salespeople’s effectiveness, Piercy, Cravens and Lane in Marketing Management, 2007) proved that rewarding KAM’s on the nature of the performance parameter, the companies involved gained more control and outcomes increased. However, this best practice has not yet come common through-out the pharma/biotech industry.
Are rewards necessary?
Other than a few early examples of “thinking outside the box” reward design in pharma/biotech companies, many organisations have not put a reward scheme designed especially for key account managers. As more individuals migrate from transactional selling to a strategic account management model, the reward should also evolve from the traditional cash bonus. Companies that have hired key account managers with a range of background activities other than sales, should design a scheme that supports KAM. These rewards can take time as they are measured on a KAM’s performance and not on traditional volume of sales.
There are many ways to measure a key account managers performance but it takes time to calculate the KAM activities as they are not only measured on volume of sales.
Examples of some of the KAM activities (and responsibilities) that pharma/biotech companies are starting to include when measuring results as part of reward program design:
– Continuous access to D-Suite/C-Suite customer executives
– Centralized coordination of matrix team efforts
– Long-term strategic planning for the companies top accounts
– Rate of adoption of solutions co-created with customer stakeholders
Having a reward scheme that aligns around the KAM will prove beneficial to both the organisation and the KAM!