Tuesday, January 7, 2014

New Business People Should Not Be On Commission

I would say that the overwhelming majority of the time that new business/sales and marketing people look to leave their companies it is because of disputes over commissions.

In April of 2013, I wrote about commissions vs. salary. At the time I wrote that post, I was ambivalent but leaning towards salary, today I am totally in favor of salary plus a liberal bonus.  This post tells why.

Any firm which pays commissions to its sales people knows that no matter how well a contract is written there are always gray areas. And because the company controls the payments when there are disputes (or at least differences of opinion), commissions tend to be cut or not paid at all.

I would like to share a few stories I have heard.  I will not comment on these stories. The issues are evident.

  • A new business person spends several years cultivating a prospect.  He gets the prospective decision maker into the agency for an initial presentation. The prospect meets the chairman and other principals.  He is not yet ready to make a change, but for two years the new business person stays in regular contact. Then the chairman attends a friend’s dinner party and the long-term business prospect is there.  They remember each other.  Three months later the agency lands the account but the chairman tells the new business person he is not entitled to a commission since he, the chairman, reinvigorated the process and brought in the account.
  • A sales person decides to cut back to four days after giving birth.  She agrees to a 20% reduction in her base, which is fair.  When she makes a couple of sales and receives her commission statement, she discovers that her employer has  also reduced her commission by 20% as well.
  •  A new business person takes a new job with a cut in base salary for a large commission structure.  The commission is a sliding scale depending on involvement.  When a new account is landed which she solicited, the agency lowers her commission because she did not attend the final presentation – at the agency’s request.
  • A very well known CMO does not bring in an account but the president asks him to lead the pitch and the process knowing that this will take most if not all his time for about six months.  So, at the president’s request, he pretty much gives up the entire new business process for six months (a significant proportion of his compensation is based on commission for accounts he brings in). He leads the team and all aspects of the pitch, including the research, strategy and the creative. The agency wins this immense account but refuses to give him any commission or bonus because he did not solicit the account even though he ran the pitch for six entire months, to the exclusion of all else.
Why do companies do this?  I suspect it is most often the CEO or financial people who are more concerned with the bottom line then about their people.  Unfortunately, they consider their sales people as an expense rather than an asset.

New business is a relationship business.  And by allowing its new business people to get angry and leave, the company loses all the relationships and momentum built by the departing person.  If they leave, the company has to restart its entire new business program.  And for what?  A mere few thousand dollars?

In most cases even if the commissions are significant to the individual, they are generally only a small amount for the company.  So for the sake of a pittance, the company loses a good employee and destroys its entire new business program.  It makes no sense.

And, of course, word of the unfair deed gets out causing immensely bad P.R both internally and externally.

New business people should receive fair compensation. If they are on commission, they should receive the full amount for any and all business which comes into the company.  That way there is never any dispute or ill will.  If the new business person is not on commission, bonuses should be fair and significant.

Paying well and fairly avoids so many problems.


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  2. Just some tips for my fellow agency new biz development professionals …

    - The best of top global agencies and their holding companies generally pay their CMOs a handsome base + bonus. Let’s say $250-300 base; bonus based on personal and overall agency growth performance. Usually outlined in an “honorable” contract. Paying commissions is not part of their comp model.

    - Smaller independent agencies (whether traditional or digital) are far less likely to commit to a hefty base and would rather opt for a much lower base, with the promise of handsome commissions on the back end of winning new biz and new income (a self-liquidating proposition, so what’s not to like, right?)

    I personally prefer the base + commission arrangement, because with a humble base that at least allows me to cover my monthly nut for food, rent, etc., I might strike it rich tomorrow if I catch a “Big Tuna”. And, of course, a written contract stipulating all of the circumstances and personal efforts covering that.

    The real problem with smaller agencies vs. larger agencies is that with the former, you’ll never see the back-end if you lose in a pitch; and probably never see it even if you win. Because in the first case, “losing” is your fault; and in the second, who needs YOU now that the agency is so flush in new income. In either case, you’ll be lucky if you keep your job.

    All of this just my opinion after so many years of experience in both worlds. Hope it helps. Bill Crandall

  3. I agree with all of the points keep up the good work.Thanks for sharing this.
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