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November 3, 2003
Monday, November 3, 2003.
Monday, November 3, 2003. Performance-Based PayThe headline of an October 17, 2003, New York Times story read, "Klein Assails Job Protection for Teachers." The story was by Elissa Gootman and in the second graph she wrote, "Mr. Klein denounced seniority rights, tenure, and pay scales that are blind to teachers' subject matter as 'the three pillars of non-meritocracy.'" I really liked that phrase, "the three pillars of non-meritocracy." It's better than pejorative phrases such as cliff-dwelling, dinosaur, out-moded, or non-productive that I have always applied to concepts such as seniority rights, tenure, and pay scales that are blind to qualifications or performance--three ideas that unions typically stress, as do academics in universities.
The original purpose of unions (including academic unions) was to protect workers from exploitation by greedy and unscrupulous management--a good thing. But the pendulum has swung the other way now and unions are about preserving job security regardless of performance. Unscrupulous and greedy unions (academic, unions too) and their members are exploiting organizations (New York and corporations)--a bad thing. As an academic (I hold an endowed chair at the University of Missouri School of Journalism), I have seen the negative effects of seniority rights, tenure, and non-performance-based pay scales.
In many media sales organizations, especially those which have commission pay systems, where you would think performance-based pay scales and meritocracy would reign supreme, union type seniority rights, tenure, and non-performance-based pay scales are firmly in place. Let me explain.
An axiom that few managers in media sales seem to understand is that you get the kind of sales performance you pay for. If car dealers pay salespeople a commission based on the amount of profit a dealer makes on a each car (and an inclining scale in which percentage of commissions increases as profits increase), then salespeople invariably will take the greedy route and charge clueless buyers the most they can--bad for consumers. If media sales organizations pay a commission on what salespeople sell, the revenue they generate on each order, then salespeople will sell for share--to get the highest share of an advertiser's budget on each order--which inevitably leads to lower rates.
Paying based on commissions also puts a premium on salespeople's assigned lists, which, in turn, leads to seniority rights. Usually salespeople with the most seniority have managed to hang on through several management regimes and palace revolts typical in media sales organizations and with each change in management and each time a salesperson leaves (willingly or unwillingly), the senior people add a plum account or two to their lists. By hook or by crook, their lists grow and these senior salespeople protect these lists with the same ferocity a mother bear defends her cubs. The reason lists are so important is because 80 percent of any media sales organization's revenue comes from just 20 percent of their accounts. (The Pareto principle--he had no idea how right he was.) So salespeople's income is directly related to how many of those 20 percent they can glom on to. It doesn't matter how good salespeople they are, if they have a great account list, salespeople don't have to work that hard and make a lot of money.
The other problem with big lists in a commission-based pay systems is that when salespeople get a good account list, they become dependent on those accounts for their BMWs and Rolexes, and they will do anything necessary to keep those accounts, which usually means lower rates and giving in to demands for favorable positions, added value, and special treatment. Management loses control and salespeople take the side of an agency or account against management. Management is also quite reluctant to fire or even mess with senior salespeople with heavy lists and good, long-term relationships at major agencies, and, thus, create tenure.
So, paying commission leads to seniority rights, tenure, and non-performance-based pay. It's like the New York teacher's union, only worse, because media salespeople make a lot more than teachers and don't have to work as hard. If you are interested in learning more about effective compensation systems, read my paper "Compensating Broadcast Salespeople: Some Recommendations." If you want to learn why selling for share can be a disastrous strategy, read my paper "Sell for Rate in Local Television."
Posted by Charles Warner at November 3, 2003 12:47 PM
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