Carrier Commissions: The Game

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 etydings@abttelecom.com.