Getting started selling life insurance is now and always has been a tough row to hoe. One of the most difficult hurdles is the compensation system. With the exception of a sometimes small sum for training allowance, all income is ultimately derived from straight commissions. Getting such commissions up to a survivable level when starting with nothing can be a real challenge, emotionally, as well as economically.
In my own case I felt fortunate when I entered the business because I had been working as a salesman on straight commission for 11 years. I was at least emotionally adjusted to the system and I liked it because it was a direct recognition award arrangement. If you produced you were paid; if you did not you were not compensated. Simple and fair.
But even the best of commission or incentive plans can be upset when tinkered with by adverse parties–a sad lesson I learned prior to entering the life insurance business. Not everyone rejoices when you achieve success. This was brought home to me rather clearly by a former employer. At the conclusion of a particularly successful month of sales I was anxiously awaiting my commission check and the plaudits that were sure to accompany it. The check was delivered to me in person by the boss, but to my great surprise, instead of a pat on the back, he simply said, “That’s a lot of money–we’re going to have to revise your compensation plan,” and it was not said graciously.
When I recovered from the initial shock produced by this turn of events, my emotion changed from hurt to anger. Thus aroused, I went to talk to the boss about his view of my recent success. First, I reminded him that two salesmen working under the same compensation plan had preceded me in the territory and both had quit because they could not make a living. Then I pointed out that my commission was based upon 20% of the profit. Pushing on, I asked if it were not true that since the company got the remaining 80%, then the more I made the more the company made.
The boss relaxed and admitted that the amount of commission had overwhelmed him and had gotten in the way of his better judgment. He apologized and our good relationship was restored. However, in succeeding years, on two occasions when I brought in very large orders, the same instincts surfaced with vague hints about splitting the territory. It became evident that my boss simply could not adjust to large rewards for large success even through his own net profit rose proportionally.
Faced with this realization I reluctantly started looking around for other work–some place with unfettered opportunity. This search eventually brought me into the life insurance business. The unlimited opportunity and earning potential insurance people talked about were a welcome change from the income constraints that had always lurked in my previous job. Moreover, in my insurance setting I had the benefit of a contract that existed in an environment that understood that just because a few people could generate incredible incomes under a plan did not make it unfair or unreasonable.
In the years I spent as a salesman with my former employer, I came into contact with many other salespeople in the automotive and industrial market. I learned that my experience was not unique and there was always tension when someone at the home office started tinkering with the compensation arrangements. Split territories, reduced commissions and other plan revisions were very often the motivation to move on and find a friendlier employer.
This experience, from long ago, came to my mind as I read about significant loss of personnel from companies that have received TARP funds. Such companies are having their compensation programs examined and even supervised by government agencies and Congress. My sense, from reading the coverage of this trend, is that those leaving are among the most talented employees, or as some may be called, “the rainmakers.” The loss of this kind of talent will no doubt make it even harder for these companies to return to profitability.
Justification for government interference in company operations derives from the infusion of government funds into the company, combined with the perception that some people are being unduly rewarded at a time the company is in distress. I am not in a position to make a judgment regarding these executives’ compensation, for this is a far more complicated subject than is portrayed in the press. The profits or losses experienced by large companies are most often the result of action taken over the span of several administrations. To saddle a current executive with the mistakes of prior CEOs is as unfair as one getting credit currently for the wise decisions of his predecessor. But, to the extent that pressure on top salaries trickles down through the organization–the brain drain begins.
Incentive pay, whether in the form of commissions or bonuses, is an important tool in turning the wheels of commerce in an economy such as ours. In most cases, incentive pay is designed to achieve a corporate objective in sales or production or any other endeavor that generates a profit for the company. To the extent such incentives are withdrawn or modified future profits are likely to be in jeopardy. One of the problems I have with government intervention in corporate pay schedules is that it has little experience with the incentive concept. Incentive pay is seldom encountered in government payrolls and as a consequence people in the same pay grade are compensated equally regardless of productivity. I’m sure there are some exceptions somewhere, but not many. A heavy hand on corporate compensation by government is, I believe, counterproductive and a caper that should not go forward.