Closer

HighTower Products Corporation has been using Finest Distributors for nearly 20 years to sell its construction supplies. Until recently, Finest reps have always made quota; but over the past year sales have slipped by as much as 10 percent a month. So seven months ago Max Baker, vice president of sales for HighTower, began taking steps to correct the problem. He introduced a short-term incentive program, which worked only as a quick fix; he then held a training session, hoping to boost enthusiasm for HighTower's product line; finally, last month, he met with Finest's new sales manager, Todd Hoffman, to discuss the situation.

After the discussion, Baker felt that Hoffman, who's been with Finest for just over a year, was at the root of the problem. Baker learned that Hoffman's management style is to use fear as a motivator; his attitude is that "coaching" is for sports. Hoffman said he's a strategist, not a baby-sitter.

Baker is running out of options. His relationship with Finest's owner, Brendan Gray, and the successful history the two companies share, prompt him to work out the problem. But his need to make sales or risk losing his own job is driving him to consider choosing a new distributor. He feels that going over Hoffman's head to Gray is risky business, but possibly the only way to save the relationship.

Should Baker talk to Gray about Hoffman? Change distributors? Or is there a better option?





solutions to our january question

John Dancer, president of Corporate Designs Limited, is procrastinating on finalizing a compensation plan. For the six months since CDL hired its first two sales reps, Dancer has set commissions on a per-project basis, often lowering the compensation after a sale was made. He feels the base salary and benefits package make up for these changes.

One of the reps, Nancy Carr, just landed a big sale; Dancer lowered her commission by $8,000. Carr tells CDL's director of sales and marketing, Janice Stewart, to get her the full commission back or she's leaving. Stewart, who's tried unsuccessfully before to keep commissions as originally promised, is unsure how to approach Dancer.

Many respondents suggested that Stewart remind Dancer that losing Carr would cost the company much more than $8,000 (the cost of hiring and training a new rep, and the damages if Carr files a lawsuit). Other respondents feel that both Carr and Stewart should just clean out their desks and go work for someone else.



January Winner

Alex Dietz

Sales Services Manager

Sinclair Systems International

Campbell, California

Stewart can approach Dancer and reiterate the fact that he agreed to the commission percentage at the start of the project. She could point out that if a customer of CDL received products and services as agreed upon, he would expect them to pay. If Carr performed by making the sale as agreed, then she earned the compensation. If she made any concessions to make the sale, then the commission percentage may be negotiated. If this is unacceptable to Dancer, then Carr would be wise to make it her last day, as would Stewart.



Other Opinions

Stewart needs to get Dancer to commit to a firm, reasonable sales commission policy. Dancer is apparently comfortable with the idea of salespeople making a percentage commission on sales until he translates it into real dollars.

In addition to paying the salesperson a commission on each sale, Dancer also should pay himself a commission. Since he is president of the company and is ultimately responsible for its success or failure, when a sale is made, he should also reap the rewards. My guess is that Dancer, like many presidents, has a fragile ego and is insecure when he sees other people enjoying more success than he is. By rewarding himself directly, he is in effect giving himself, as well as the salesperson, a pat on the back for successful sales.

In addition, Stewart should suggest this plan in an off-hand manner so that Dancer believes that it's his idea. Perhaps by reminding Dancer that a successful sale means the company wins and since he is responsible for the company, he should directly benefit from the sale. Stewart should also push to get the $8,000 commission for this sale reinstated for this one instance until a new plan can be put in place. Perhaps part of the commission can be paid in stock or the company can invest it in the retirement plan for this salesperson to soften the blow to the company's bottom line. Stewart will undoubtedly need to perform some skillful negotiations.

John C. Spencer

Manager

Andersen Consulting

New York



Stewart indeed will have a difficult time extracting any changes out of Dancer. She should start by offering a solution to the commission problem, rather than wait for Dancer to finalize the compensation plan. She should suggest setting a minimum commission rate that would allow for increases based on meeting certain criteria, such as gross margin. Dancer could be in control of the commission, but he would only be allowed to increase it.

This solution should be acceptable to Dancer, who would still set the commission, and who should see the wisdom of guaranteeing some level of commission to the reps. The reps are still at the whim of Dancer, but at least they have some security and what should be adequate motivation. Now Stewart need only address the problem at hand with Carr.

Dancer sounds like the kind of guy who would let Carr go rather than let her dictate terms. Assuming Stewart gets Dancer's agreement on the minimum commission, she should ask for it to be applied to Carr's recent sale. It may or may not make up for the $8,000, but Dancer can agree to do it without feeling blackmailed, and Carr may settle for less than the full amount.

If Dancer does not accept this proposal, Stewart should update her résumé and follow Carr out the door, unless Stewart wants to spend her career working in a culture not conducive to growth and appropriate rewards.

James W. Gamble

Account Manager

D.A. Stuart Company

Hopkins, Minnesota



As a manufacturer's rep I found myself in the position of having commissions arbitrarily lowered. In every case the company was like Dancer in this scenario; in every case I discontinued representation and ended up representing a direct competitor.

Stewart needs to sit with Dancer and explain that his behavior is unethical and immoral; sales reps are starting a job thinking the compensation is X and then, while they have performed their end of the contract, they find out the compensation is Y. Dancer must realize the destructive impact his policy has on staff retention. He needs to be shown that losing staff and having to hire new reps and retrain them will cost more than the $8,000 in question. Dancer needs to understand that the staff will leave and become competitors. Their inside knowledge of CDL will give them a strong, if perhaps short-term, advantage in the market.

A final, irrevocable, compensation arrangement must be immediately published. All sales "in the pipeline" would be governed by the original agreement. Later sales would be per the new arrangement.

Jay Yarnell

Account Executive

JEA

Jacksonville, Florida



This scenario unfortunately hits too close to home for our company. As manufacturers representatives we have faced this exact situation too many times.

Carr will quit, opening the door to potential legal action to recoup her commissions. Stewart may lose her second rep when he hears how Carr was treated. This information will quickly get to their competition, who may use it as an example of the company's lack of ethics. This could cause customer problems, potentially hurting future sales, and will certainly make finding good replacements for the two reps difficult.

Stewart needs to go to Dancer and present the scenario. Is the $8,000 commission worth potential legal action, the loss of the two sales reps, and corporate image problems? If Dancer still refuses to remain true to his agreement with Carr, then Stewart has to find another budget from which she can make up the short-fall.

Stewart's integrity is on the line. Her actions will send a signal as to her ethics. If Dancer doesn't keep his word, Stewart should begin updating her résumé, as this is not a company with a future for her.

But, if she gets Carr her commission, Stewart then needs to get a formal program in place. Obviously Dancer's word is worthless, so all future projects need to have signed commission contracts. While that will not guarantee honesty, it makes it easy for the reps to be protected.

James McCandless

President

Marketing Analysts Inc.

Delaware, Ohio



Stewart first should meet with Dancer and determine his rationale on the commission for each of the projects. If the commission is based on profit margin rather than revenues and the profit was lower than expected, then Stewart should explain to Carr that this is the reason for the change. If the commission was arbitrarily changed, then Stewart should insist that Carr receive the commission that Dancer initially committed to.

Stewart should use the possibility of losing Carr as the leverage to get a formal policy in place and a commitment on the timing of its implementation. Dancer thinks the reps are "handsomely" compensated with a high base salary, so Stewart should review with him a target compensation package (base salary plus commission) that he thinks is reasonable for X number of projects sold or Y amount of profit. Then they can calculate what the commission component would be for an average performer. As a bonus, they could offer a higher commission for performance beyond the projected average.

Stewart should also get Dancer to agree to draw up contracts between CDL and its reps for each project until a formal plan is in place.

Cynthia Schuster

Principal

Medical EquipNet

Newport Beach, California