New trend in sales compensation: pay pegged to performance - for magazine advertising salespeople

Folio: The Magazine for Magazine Management, July 1, 1994 by Tim Bogardus

Since the advertising bonanza of the 1980s evaporated four years ago, ad salespeople have found themselves either treading water or fighting hard just to maintain their territories - if they still have jobs at all. In many page-driven compensation systems, rate-cutting has contributed to the drop in net incomes and the disappearance of third- and fourth-ranked magazines in certain categories.

Today, revenues from ad sales are once again on the rise, but industry analysts agree they will never reach the frenzied levels of the mid-1980s. "I don't hear anyone predicting a burst in ad sales in the near future, " says Hal Jaffe, senior consultant at Los Angeles-based Magazine Consulting Group. Ad pages in consumer magazines were up a scant 1.2 percent, to 167,917, in 1993, and advertising revenues gained a modest 6.1 percent, to $7.6 billion, according to the Publishers Information Bureau. Those numbers are a far cry from the 10 to 15 percent annual gains of the 1980s.

Also, the nature of the game has changed. Publishers have reduced their sales staffs, restructured compensation packages and extended their franchises with ancillary products. Many ad salespeople must now be prepared to sell TV air time, trade show and retailer promotions, and other value-added products to supplement ad page income.

"The biggest trend, causally, is not new products, but rather the tepid state of advertising sales over the last five years," says David Orlow, president of New York City-based Periodical Studies Service. Compensation, he says, was "disproportionally accelerated" in the late 1980s. Salaries became inflated and incentives were based on bringing in new business. "Now," says Orlow, "management realizes that saving ground is as valuable as gaining ground."

Orlow adds that when ad sales went sour at the turn of the decade, publishers began to ask themselves what their salespeople were really worth, and adjusted accordingly. The result: Base salaries, which used to be 60 to 70 percent of the entire compensation package, dropped to about 50 percent, and incentives became a larger part of the package. Total compensation is down compared to where it was five to seven years ago.

Dan McNamee, president of the McNamee Consulting Company in New York City, agrees: "Publishers are finally catching up to modern compensation theory," he says. "Companies are paying for performance, and that performance is based on the economics of the company. "Thus, the shift has been away from commissions based on a percentage of total billings and toward a bonus system based on meeting defined goals.

Caveat vendor

But Orlow and McNamee offer a caveat: No one compensation system works for every magazine. In fact, the systems can vary even within multi-title publishing companies. "There is no way on earth an intelligent sales incentive plan can be developed by using a formula, " says Orlow. The most important thing is that an incentive plan meet a magazine's specific needs.

At Cleveland-based Penton Publishing, for instance, management gave the sales force a voice in developing a fair compensation plan. In 1991, a committee composed entirely of salespeople reviewed existing compensation plans. They proposed raising commissions from 5 percent with a quota to 10 percent with no prescribed quota because the sales force felt that the management- imposed quotas, or bogeys, limited their earning potential. Management accepted the proposal, but reserved the right to set quotas for the largest territories.

But that's not as simple as it sounds. Penton publishes 32 industrial trade magazines, including Industry Week, Electronic Design and American Machinist, that vary greatly in size and revenue. Penton's magazines base their compensation packages on the plan, but because of the disparity in earning potential among the publications, several plans are actually in effect. Some salespeople with smaller territories are on a standard base-plus-commission plan with a flat 10 percent commission. Those with large territories begin earning a commission after they achieve the bogey for that territory. The bogey and commission are adjusted for the size and earning potential that goes with the territory.

"It's very tailored to the territory, the magazine and the individual," explains Penton CEO and president Sal Marino. "We have a philosophy that if a salesperson has X amount of billing, he should be able to earn X amount on that billing." Recently, Penton increased the size of certain territories, but each is structured so that salespeople have the potential to earn between $70,000 and $80,000 for every $1 million of business. Marino notes that there is always the potential to earn more.

In addition, the company places no cap on commissions if a salesperson grows the territory, and individual compensation packages and territories are re-evaluated annually and adjusted according to fluctuations in the market and the territory. "I think our people are very satisfied and paid competitively," says Marino.