Cases

Defining a Remuneration Strategy for the Carrying and Forwarding Agents of one of Indias Largest Pharma Companies

Challenge

The management at the contract development and manufacturing arm of a pharmaceutical and healthcare company believed that the carrying and forwarding agent (CFA) remuneration policies, defined a few years ago needed to be aligned with the current business context and linked to the performance of the CFA. The current monthly remuneration of individual CFAs evolved based on annual negotiations and not on performance. There was a high variance in the fixed component between CFAs of similar size and complexity. The top management wanted to revisit the existing remuneration policies and thus requested UC to define the remuneration strategy for the CFA considering the following:

  • Remuneration should be commensurate with the efforts put in by the CFA and the performance delivered
  • The client company, in the past has grown with acquisitions, and CFA earnings should only increase if there is an additional contribution/ resource deployment by the CFA
  • The respective current remuneration (in absolute terms) should be retained as this is not a cost cutting exercise

Our Approach

UC conducted primary research to understand CFA remuneration policies of other pharmaceutical companies and derived key learnings from it. UC analysed the current remunerations in detail, in terms of fixed components, variable components, reimbursements and premises rent. The remuneration heads were further analysed for each component under them to understand the key drivers of CFA costs. UC took the following steps to define the renumeration based on the client’s demands:

  • Evaluated two options for remuneration

    1) Retain the existing fixed + variable + reimbursement format, with a revision in their components

    2) Variable percentage system for each CFA tier based on the business volume

  • We compared the two options on parameters like remuneration administration and change management, and recommended the client to go for the variable percentage system
  • The remuneration percentage were moderated for some of the CFAs, depending on the average distance serviced by them since secondary freight forms a substantial component of CFA’s costs
  • Similarly, we evaluated two options for a performance based incentive system

    1) Fixed amount based on level of performance

    2) Add on percentage to the monthly remuneration percentage based on performance

  • We compared the two options on parameters like administration of the system, and motivation to improve performance levels and recommended the client to go for the add on percentage system.

Impact

UC concluded the engagement by defining the contents of the communication to the CFA:

  • Remuneration and incentive system philosophy
  • Benefits of the remuneration and incentive system
  • Incentive payment mechanism
  • Rationale for gain/ loss in remuneration for each CFA aligned to performance level.