Posted: 12/2002

Carrier Commissions: The Game

By Emmet Tydings

Michael
Douglas and Sean Penn portrayed unlikely brothers in the implausible but
entertaining suspense thriller, The Game. The film climaxed when Douglas’
character apparently plunged to his death, smashing spectacularly through the
stained glass dome of a grand ballroom, only to survive unscathed — as part of
a bizarre role-playing game in which he had been seduced by his brother. The
scene came flooding back to me when I found myself sitting beneath the dome of
that very ballroom recently. The irony was that I, too, was playing an elaborate
game — only mine was commission negotiation with a carrier. I lost that day.
But was I really the loser?

In our ballroom encounter, it was
explained that by not reaching the first sales milestone in our contract,
commissions would drop dramatically lower. My competitors reading this should
gain only momentary satisfaction; the implications of this clause are sure to
impact each of us. Here’s why: A tangential reason given for the policy was that
the carrier couldn’t afford to "forward pay" commissions when the
master agent missed numbers. I don’t know any carrier that pays ahead of sales,
so use of the phrase "forward pay" really drove home how out of sync
the carriers are with the channel.

The disconnection worsens between
the carrier channel managers and their superiors who are isolated from the
channel. The carrier channel sales vice presidents are of a mindset closely
reflecting that of the master agents because they work with us. Their voices are
muted, however, as they reach the ears of executives higher up the management
ladder. As a result, master agents and carriers are engaged in an endless waltz
of compensation negotiation that’s absurdly out of step.

Back in the ballroom, we were
discussing the grim reality of being bludgeoned by commission adjustments when
instead we should have been talking about reaping the benefits of our efforts.
Ironically, the consolation coming from the carrier was that because of our hard
work, good faith and some sales, they were going to allow us to remain direct
with them. In other words, they still wanted us, but they couldn’t help on
commissions because of the cards dealt from the top.

So my message is, "Hellllooo,
Joe Big Carrier: Your ramps are too short, the quotas too high, and while the
market’s in turmoil we keep our chins up and work our tails off for you anyhow.
You should be able to tell the difference between the real McCoy and the snake
oil salesman and make adjustments on that basis alone."

A crucial point in this argument is
that the realities of being a master agent have changed dramatically. Master
agents are locked in a fierce foot race to grow ever larger and more efficient
in order to gain critical mass leverage. A key component to that growth is the
effective management of subagents. To this, compensation is inextricably tied.
If management of subagents is an elixir for growing a channel of critical mass,
then the inherent lack of control over subagents is the salt in the wound
inflicted during battle. Subagents follow the money and take time to absorb new
services.

Another fundamental challenge that
no one seems to have properly assessed is the value of the channel for assigning
appropriate compensation. I’m convinced the channel can do it for less, and
will, and that furthermore lower cost is not even the most important catalyst
for channel deployment. Look at Tech Data Corp. and Ingram Micro Inc. for an
idea of what I’m talking about. They control $50 billion of their channels by
aggregating products. Resellers need them, vendors (read: carriers) can’t
substitute for them and in like fashion subagents can’t go to a single carrier
to satisfy diverse needs.

Master agents are tasked to change
behaviors of their subagents to reflect sales of their service offering. This
takes time. Retailers know that changing consumers’ shopping behavior is central
to their success in luring shoppers to their stores to become repeat customers.
Luring subagents to become repeat sellers is no different, and changing their
behavior takes time and money. The phrase "it’s like herding cats"
applies.

Contrasting market realities, some
carriers want large master agents with their subagents to come on board for big
sales immediately. To them sales are somehow like a Chia Pet. Water it, sit back
and watch it grow, quickly! My partner Glenn calls this expectation the
"carrier dream." Unfortunately, it’s a Rip Van Winkle dream that will
take time for some to wake up from.

Craig Schlagbaum, vice president of
channel programs at NTT/Verio Inc., offered his own analogy, saying that some
carriers have fallen prey to a "Jack and the Beanstalk syndrome." They
believe that if they plant the seed today, sales will be reaching up in the sky
tomorrow. Instant gratification should arouse suspicion. If a sales manager
constantly prods with quota, recommend Prozac or a singles bar.

Changing subagent behavior is an
arduous process that takes time, patience and persistence. Three- to nine-month
sales ramps don’t work; two years is realistic. That is probably the reason so
many carriers offer bonuses for swapping a base from another carrier. However,
that doesn’t expand my pie, so I don’t buy into them.

One alternative to the current mode
is to base programs on multiple benchmarks in evaluating and tracking master
agent value and potential. Those benchmarks could include subagent count,
marketing efforts, technical certifications, trainings, carrier events attended,
quote volume and quality, responsiveness to subagent needs, future sales and
marketing plans, the relationship, sales and others. I’m not suggesting that at
some point numbers aren’t the most important measure, they are. Numbers just
take time and many carriers could use better judgment in evaluating what
constitutes the right stuff to get there.

Emmet Tydings is president of
AB&T Telecom, a Maryland-based master agency composed of 100 agents
providing business solutions in data, IP, voice and vertically integrated
technologies. He can be reached at [email protected].