Leisure agencies are increasingly moving to a commission-only model of compensation for their sales agents, a trend that reflects the growing number of independent contractors in travel distribution.
Data from a number of financial benchmark surveys by the American Society of Travel Agents illustrates “a clear trend of a commission-only model” among leisure agencies, said John Pittman, ASTA vice president of industry and consumer affairs and research. Corporate agencies remain focused on a salary compensation model.
During the 2004-2008 period, the most recent ASTA data available, the percentage of agencies paid salary only declined from 52% to 44.3%, while agencies paying commission-only more than doubled, from 10.7% to 29%. The rest of the agencies surveyed were paid on some variation of a hybrid commission-salary structure, Pittman said during a presentation at last week’s THETRADESHOW conference in Orlando.
The apparent shift to more commission-only compensation structures on the leisure side is partially based on the burgeoning number of business relationships between travel agencies and independent contractors, most of whom are paid on a 100% commission-only basis, according to Robert Joselyn, CTC, president & CEO of Joselyn, Tepper & Associates, Inc. and Travel Agency Management Solutions (TAMS).
“The commission-only approach is gaining some traction but it is still a small percentage of the total compensation arena for agent employees,” Joselyn told Travel Market Report. “Having said that, there has been a substantial movement away from fixed compensation for some time. The most common approach in the industry now is a fixed base with an incentive element. There are many different versions of this approach.”
Most retail organizations pay a base salary plus commissions to their sales personnel, said David Cichelli, senior vice president of the Phoenix-based Alexander Group, a consulting firm for sales executives. That broad salary-plus-commission structure is as specific as it gets, he said, noting that there is no overarching trend or widespread compensation model in use across the retail sales industry because pay plans depend on what works best for a particular company.
Cichelli, who has worked with travel agencies in the past, believes a tiered compensation program is most effective, starting with salary-only for new employees and moving to commission-only for experienced salespeople who are proven producers and have built a solid book of business.
Pros and Cons
In the travel industry, one major challenge posed by a commission-only compensation structure is the seasonality of leisure travel sales, which causes understandable angst among sales agents accustomed to the steady income. A hybrid salary-commission package is often used by agencies migrating from a salary-only model to a commission-only pay plan as a way of smoothing out the transition for their sales agents, Pittman noted.
Whether the move away from fixed compensation to incentive-based models, including commission only, is increasing sales productivity remains to be seen; ASTA does not have that benchmarking information – yet.
Neither does Joselyn’s company, TAMS, although he noted that TAMS agencies using a commission-only model, “seem to do quite well. One of the great benefits of commission-only is that it focuses attention on revenue, not sales,” he said, adding that “sales are vanity, profits are sanity.”
Commission-only pay plans can also boost a travel seller’s earning power, Joselyn said. “Commission compensation provides an incentive to close sales opportunities, to sell efficiently and to create ongoing customer relationships,” he said, especially when incentives promote the cultivation of long-term relationships with clients who generate repeat sales and referrals. “Commission compensation also enables star performers to earn their worth,” he said.
On the potential down side for an agency owner, Joselyn noted that commission-only pay can be an impediment to attracting talented sales people who need the financial security a salary provides. Another possible negative is the tendency of some commission-only sales agents to focus on short-term compensation from a large sale that might not best serve the customer, thereby endangering the long-term relationship. In general, pay plans that include incentives for agents to retain customers and grow the travel agency’s business are an ideal model, Joselyn said.
Industries Adopt Incentive Pay
Incentives are used by sales organizations in a variety of industries, according to the U.S. Bureau of Labor Statistics (BLS).
As in the travel industry, many independent insurance agents are paid commission only, while salespeople who are employees of an insurance agency or an insurance carrier are paid in one of three ways: salary only, salary plus commission, or salary plus bonus, according to the BLS.
The BLS reports that in general commissions are the most common form of compensation for insurance sales, especially for experienced insurance agents. Bonuses are usually paid when agents meet their sales goals or the insurance agency meets its profit goals.
Sales representatives of wholesalers and manufacturers usually earn a combination of salary and commissions or salary plus bonus, according to the BLS. Commissions are based on the value of sales, and bonuses depend on individual performance, on the performance of all sales workers in the group or district, or on the company's performance.
As illustrated in the BLS data, Joselyn noted that there is a strong and continuing trend across many industries “toward relating compensation to beneficial organizational performance” rather than focusing only on an individual’s accomplishments.
Beneficial performance for corporate travel agencies centers on the number of transactions that generate fee revenues, and that’s a key reason corporate agencies are sticking with salary-based compensation, noted Pittman.