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Commissions for employees

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Eric RansdellCommissions for employees
by on Feb 18, 2009 at 4:03:08 pm

My partner and I run a production company in Shanghai with a number of Fortune 500 companies and major networks as clients. We're very lucky to have some whip-smart kids from the east coast working for us who started out as interns last year and have decided to stay on. We're paying them very good salaries for China, but it's still less than what they could probably command in (pre-global financial meltdown) New York. And we'd be happy to pay them more, but we've pretty much hit the roof in terms of salaries and overhead. So we've encouraged them to go out and try and bring in more business, with the idea that if they did, we'd cut them in on the action. As it happens, one of them has introduced us to a very big client who is a friend of his father's and whose job could pay out for the next couple years.

So, here's a couple of questions we're wrestling with: 1) What's a fair percentage for this intro? We may or may not have had the business otherwise, but then again, this isn't selling wine or widgets or any other product that we've had no work in the production of, we'll get the job because of all the hard work we've done before we even hired these guys and that will ultimately be the deciding factor. But, on the other hand, we run an honest shop and we want to be fair to this kid and encourage the others to get out there and help gin up more business. 2) Is this a one-time pay-out for the intro, or do we pay out for the life of the project? If it was whiskey and he was a salesman who landed a hot new club, then we'd pay out a commission for the life of the project, make him an account manager and that would be that. But he's on a monthly salary and whatever we do is going to involve the whole shop, not just him in terms of the script-writing, shooting, post-production, AE & Color work & etc. 3) What if one of them introduces us to an agency we haven't worked with before? My partner and I have been in this town for 15 years, between us, and know just about everyone. So if one of the kids creams a card off a girl in a bar and we get a job from the agency, where do we go from there - meaning, are they cut in on every project we get through that particular agency or is it just the first job? And what's the percentage?

The key point here is we want to be ruthlessly fair. We're very happy with the team we've put together an we want to motivate them in any way we can. But we have a business to run and our own profits and overhead to think of. We've never been in this situation before so I thought we'd go to the experts for any and all advice.

FLY Films
Shanghai, China

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grinner hesterRe: Commissions for employees
by on Feb 18, 2009 at 7:45:27 pm

Commmission is ideal for those with only your product to sell. You can't get better motivation than that.
In this case, what they provide is a service and if going out and selling these services, common sense would lead them to weed out the middle man (you) sooner or later.
As an employee, I always liked thank yous in the form od random bonuses. That goes a looong way. Six monthd after the fact a dude will be thankful for an un ask for check.

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Mark SuszkoRe: Commissions for employees
by on Feb 18, 2009 at 9:15:17 pm

Just my own opinion based on what "feels" right.

It certainly seems like a murky area. For sure a percentage bonus to the guy off the first year's billing, I should think. Not as sure about a continued bonus every year, unless you establish profit-sharing for the whole office, such that, the guy that brings in a big fish gets the bonus, but everybody gets a taste of the firm's extra profit in the regular paycheck, or in additional retirement or other benefits...

In that way, you're rewarding initiative of the individual without de-motivating the rest or making them fight within the office, the team who actually serves the new client. After all, the referral isn't good for long if the team doesn't follow thru and service the client well. You want the competitive effort always facing out the door, aimed at new business, not on inter-office rivalries. But I'm not a sales manager, so maybe I'm wrong.

Back when I was a kid in Chicago, if somebody referred you for a job, and you got it, it was worth one month's worth of the job's annual salary as a thank-you. Not a kick-back, not baksheesh. Just a thank-you, and nothing expected after that, and it was never actually asked of you by the guy that referred you, it was just sort of customary. More like: "Hey, Bob, I did get that job you told me about, here, share my joy, have a big dinner on me, or with me".

These days you just don't do that sort of thing.

In my youth also, if you passed a used car salesman's card to a friend who was shopping and they wound up buying from that salesman, he'd give you fifty bucks cash or some equivalent value bonus or service for the lead. I don't know if that stuff still goes on in the private sector. My experience is definitely dated in this regard.

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Mark RaudonisRe: Commissions for employees
by on Feb 19, 2009 at 4:12:28 am


Did you say Chicago? ... and, "Does this stuff still go on?" Ahem, read the papers lately? Seems like the
going rate for a senate seat is mid to high six figures.

Back to the original post. Boy, this is a sticky one. Seems like you're adding a partner and not rewarding an employee. I appreciate your effort to be fair, but sharing in profits usually means sharing in risks. Is this person "on the hook" for your monthly nut? What's their investment in your business?

You should be careful here. It sounds like you could be giving away your profit margin.


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Mike SmithRe: Commissions for employees
by on Feb 19, 2009 at 11:36:25 am

It appears fully legitimate to pay commission on sales, and perhaps on introductions that lead to sales or sales meetings where the introduction is picked up, entirely negotiated and closed by the producer. In your budget, it would be a "sales costs" line item in overheads or operating expenses.

If you don't motivate your people to get out and sell, particularly when that wasn't their original job, they probably won't be fully committed to it, and won't be very good at it.

Your staff will watch carefully the way you treat whoever brings in the first intro, and take a view on how fair or motivating that is.

Leaving out the middle man: it will happen. Be sure your service is excellent, and you have the skills and resources to be an excellent supplier, a tough competitor and hard act to follow. But sales people, and clients, will move.

One London based production company I once knew well offered salesman - producers a choice of a low basic salary and 5% of all turnover brought in, or 10% and no salary, along with an "exec producer" role or credit on any corporate or commercial business resulting from their efforts.

For several years they managed a stable of salespeople/producers on that basis. They grew very fast. Some of those sales people left and went on to become (successful) producers elsewhere. Some of those might have stayed, if that firm had treated them more fairly, though some would have wanted to be the number one whatever.

Wasn't it David Ogilvie, on his way to building a giant global agency, who wrote:
"First, make yourself a reputation for being a creative genius. Second, surround yourself with partners who are better than you are. Third, leave them to go get on with it."

And of course Ronnie Reagan, love him or hate him, offered:
"Surround yourself with the best people you can find, delegate authority, and don't interfere as long as the policy you've decided upon is being carried out."

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Eric RansdellRe: Commissions for employees
by on Feb 19, 2009 at 5:20:37 pm

Thanks to all for the responses. It is indeed a sticky one. I'm not really worried about them setting themselves up here as competitors. The almost certain exit scenario for all of them is to return to the US and work there. But, Mike Smith is right. They will definitely watch to see how the first one who brings in work gets treated. Which is why we're trying to figure this out because that client has already asked us for a bid and it looks like it's a go. And if it is, he has every right to ask what he can expect. And if it's a one-off or he's going to be cut in on every bit of business that client generates over the next couple years.

Also a question for Mike Smith, the London production company you mentioned that offered their people 5 or 10 percent on "turnover"? Are you referring to profit, the production fee, entire budget (i hope not) or something else entirely?

FLY Films
Shanghai, China

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Mike SmithRe: Commissions for employees
by on Feb 21, 2009 at 10:39:36 am

Hi Eric

For you, if you haven't already, I'd guess one good move might be to bring in the person in question and ask what s/he wants from the deal. See if it's in range for you.

On the London company story, that 10% was on total turnover. More, the salesmen-producers supplemented that with additional fees for work on the productions, as production manager, producer and sometimes script consultant (all supported through the company's core staff). But that was on top of no salary at all.

The deal worked quite well for both parties. A number of people tried it and it didn't work out, but for the few who did well, they got to make a living from selling and then producing video, learning on the job, and with a welcome strong client focus.

In the sales process, they had the support of a company generating a few million pounds a year in television series and corporate sales, and a core staff of eight or nine, including a permanent producer and two permanent writer-directors, a couple of good pa / production coordinators and two edit suites with editors. Plus a good showreel. And of course many clients in larger organisations prefer to buy from a producer who manages and can bring a large team to bear, rather than from one-man-bands.

For the production company, they found that the few who did well each were soon bringing in a few hundred thousand pounds worth of business a year - profitable additional business, along with some good customer names and valuable diversification into new business areas.

Of course the company had to absorb the sales costs into their production budget mark-up. But since their business was as producers rather than as shooters or editors, they had long since realised they needed budgets that covered all bought-in services at cost with a fair admin and contingency mark-up, along with a mark-up for office, overhead, staff, equipment, liability and other insurance, sales, accountancy and admin. So giving up a slice of that in return for turnover and no-salary extra producers seemed like a good deal to the three principals.

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John BaumchenRe: Commissions for employees
by on Feb 23, 2009 at 11:26:55 pm

I never had any staff working for me so I have no experience with salaries. For the people who brought me business, I paid 10% if they gave me a name and introduction and it turned into a job. If they actively helped seal the deal, 20 - 25% on the first deal, 6% on subsequent jobs with the same client.

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