Reader Response: Controversy Over Commissions

Several orchestra managers and industry insiders wrote in with concerns about my ideas surrounding the use of commission based compensation in the orchestra industry.

In general, they all took issue over my suggestion that commissions should be included as a portion of some executive and staff member compensation. All of the emails I received were well thought out and articulate, but I began to pick up on one consistent theme: everyone was assuming that the commission structure was universal and all encompassing.

Thankfully, this let me see a flaw in my writing: I still take too much of what I know for granted.  And what I mean to say is that when I wrote the piece, there was quite a bit I understood about how some of the expected problems surrounding commission based compensation could work in a complex non-profit setting such as an orchestra.  But I failed to include some of that in the article.

For example, the majority of people who interact with individuals who work for commissions are at institutions such as car dealerships, appliance salespeople, etc.  Most of the annual compensation for these salespeople is derived entirely from commissions for items they have directly sold.

But this medium is only the most simplistic sense of commission based compensation and excludes the more sophisticated structure of more advanced commission systems

I’ll illustrate my point by answering some of the questions and comments that were sent in:

Q: “How can you expect orchestras to base a commission off of a pledge over received donations?”
A: Simple, you don’t.  I don’t know of anyone paid by commission that receives a fee for the promise of a sale.
Q: Most large multi million dollar donors take years to cultivate and it’s a team effort.  How then do you decide who receives what percentage of the commission?
A: In the for-profit industry, they take the time to determine how much effort an individual put into a project and then base their final commission by a predetermined scale for just such a situation.  If an administrator leaves the organization before the donation comes through, they get nothing.  It serves as a good incentive for a talented development officer to stick around.
Q: Isn’t it demoralizing to examine each gift that comes into an organization in order to determine which staff members deserve a commission.
A: Why would that be demoralizing to verify an employee’s contribution toward obtaining a donation?  In the for-profit industry they do that all of the time.  It prevents fraud and abuse of the system.  I presented this question to a friend of mine that works on commissions selling very high tech manufacturing equipment around the world. He just laughed and said “My company checks everything I do and I check everything they give me to make sure I’m getting what I deserve.  It’s not demoralizing at all, as a matter of fact, that system prevents many potential problems”.
Q: Some donations are from direct fund raising efforts of board members and the development officer only comes in to “close the deal”.  Why then should the development officer receive a commission for work executed almost entirely by a board member?
A:  Yes, board members can not receive compensation for their efforts, nor should they.  And nor should a development officer receive a commission just for “closing the deal”.  Commissions aren’t an all of nothing program, they are very flexible and approached with a great deal of common sense.
Q: How can you offer a commission to a grant writer for a grant received when the terms of the grant prohibit use of the funds for operational purposes?
A: That’s a problem that needs to change on the side of philanthropic organizations.  But in reality, orchestras already “fudge” the numbers they include in grant proposals in order to direct some of the funds they receive from the grant to cover operation expenses.  This just falls right in line with what everyone already does.  Granted, I agree that it’s not good policy to “fudge” those numbers but it is the philanthropic institutions that have created an environment that encourages this behavior.  They are where the first step of change needs to take place.
I would also suggest that many musicians are interested in taking their time to write grant proposals, especially for grants that the regular development staffers or organizations that have very limited staffers don’t have time to cover.  But there isn’t any incentive for them to take the time to do it.  And in smaller orchestras this could make a large difference in the amount of operating revenue they have in any given year. Where’s the harm in offering someone something for their work when there aren’t any other resources available?
Q: Most orchestras receive funding from private and government foundations.  So how is it fair to an executive their salary suffers just because those groups give less money due to a dip in the economy?
A: It’s absolutely fair, and one of the underlying points behind the existence of commissions.  It promotes creativity.  If some of your regular sources dry up then you have far more incentive to go out and find new sources of contributed revenue.  That’s the whole point.
One of the problems the industry is currently suffering from is a lack of new money coming into orchestras (not to mention new patrons individual donors).  But I don’t see many groups actively courting new donors.  Instead, they focus much of their efforts and resources on trying to recapture government and foundation support.  When your current well dries up, it’s not always the best idea to keep digging in the same place.  More often than not, you’ll find water closer to the surface by digging somewhere else.
Q: How do you determine which members of the staff receive commissions and which don’t?
A: By whichever method you desire.  The for-profit industry uses a multitude of sliding commission scales based on an individual’s position and contribution to a project.  Staffers that have less direct contact with donors or a fundraising project get a smaller commission.
Q: Won’t potential donors be turned off by the fact that the person asking them for money will have less credibility than someone only working for a salary?
A: I hate to answer a question with a question again, but why would that matter?  Does that change the mission of the orchestra?  Does it make the donation less valuable?  Frankly, I wouldn’t give to most orchestras now because I know what their executives earn (and you can to by visiting www.guidestar.org) and I think they’re overpaid based on the quality of the job they’re doing.
Philanthropic giving on the individual level is done for two basic reasons: someone believes in the mission of the institution or they do it for the tax break (and you can throw large gifts derived from vanity in that group too).  So how are either of those categories turned away by staffers working for commission based compensation?
Q: Won’t you end up with a bunch of development officers that act unethically?
A: That’s what executives and oversight are for.  It’s their job to ensure that the employees are behaving ethically.  It’s an executive’s function to oversee those that work for the organization.  If the executives are paying attention then there should be very few problems beyond the random intentional abuse of the system (and you’re just as likely to find those types of individuals embezzling from the organization anyway a bad apple is a bad apple).
Q: What about surprise gifts that come in out of the blue, why should development officers get a commission on those?
A: They shouldn’t.

These were all thoughtful questions but they show that universal path of thinking, a sort of “only one way” method of approach.  That’s another one problem in this industry; too many people apply ideas and solutions across the board in a “one size fits all” fashion.

This type of approach also shows a thread of unaware thinking, meaning people assume that those who work on commission are compensated almost entirely by commissions.  But that’s just not the case for many high end professionals.

Most people that work for a type of commission do receive a base salary because there’s always a portion of their duties that are necessary but not inevitably related to directly generating revenue.  So the stereotypical “sleazy sales shark” that works entirely on commissions isn’t the model I’m advocating.

What works in New York may or may not work in Idaho.  The commission based compensation program developed at the Glendale Symphony (which I wrote about in the original article) is only one method out of many that any organization could use.

Other orchestras can come up with their own commission based compensation programs that fit their situation best.  That’s the beauty of the system.

In the end, commission based compensation helps small and mid sized orchestras retain talented administrators and build a strong support base in their community.  Yes, a system like this will require changes in the way some people think and the way an orchestra administration functions.

But the benefits far outweigh any potential losses.  And most importantly, it will force the industry to begin setting concrete goals for its leaders.  And that’s a topic I plan to visit in further detail in the near future.