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 requested to revisit the existing remuneration policies and define the remuneration strategy for the CFA.
UC Strategy conducted the following approach:
- UC Strategy conducted primary research to understand CFA remuneration policies of other pharmaceutical companies and derived key learnings from it
- UC Strategy 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 Strategy undertook the following steps to define the remuneration based on the client’s demands:
- Evaluated two options for remuneration: Retain the existing fixed + variable + reimbursement format, with a revision in their components
- 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 was 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
- 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.
UC Strategy 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
- The rationale for gain/ loss in remuneration for each CFA aligned to performance level.