A Changing Pay Environment

  Thanks to relatively high unemployment rates and low cost-of-living increases, wages for debt collectors are increasing only moderately. That's good news for credit card collections managers and third-party collections agencies.
  Stable wage costs not only make for one less thing for collections executives to worry about, they also give managers more elbow room to experiment with inventive commission structures-the element of compensation that motivates collectors the most.
  "I don't see increased expectations (regarding) salaries," says Kevin D. Murphy, director of collections for Juniper Bank Corp., the Delaware-based credit card issuer majority-owned by Canadian Imperial Bank of Commerce. "This is all about creating the best variable compensations. That's what we emphasize."
  He agrees with other collections managers that they all constantly survey the local pay landscape to be sure that they're offering reasonable, but not lavish, starting pay. Once new hires start, they're intrigued not by the $10 to $14 an hour that is a common industry norm for first-rung compensation, but the opportunity to reel in generous bonuses by hitting performance targets.
  "The economy has a lot to do with expectations," says Allan Angelo, marketing manager with AFNI, a Bloomington, Ill.-based collections and customer-service call-center outsourcing firm with 4,000 employees. "It is easier now (to hire people) than it was three years ago. Pay rates have pretty much stayed level with inflation." AFNI's pay starts at $10 an hour.
  Minneapolis-based ACA International, the association of third-party collections professionals, released in January its most recent national compensation survey. The survey period was 1999 to 2001. Over that time, pay increases for collections staffers ranged from 10% to 40%.
  The richest increases went to owners of third-party agencies. Sole owners and dual owners each hauled in 40% increases in total compensation, earning an average of $133,415 and $113,462, respectively.
  Not surprisingly, those lower in the pecking order also saw their compensation increase, but not by as much as owners' pay soared.
  Managers' increases were fueled nearly as much by performance-based incentives as by shifts in base pay. The average base salary for an agency general manager moved up about 17% to $62,468 from 1999 to 2001, but the average commission rate doubled in the same time frame. Total average annual compensation rose 26% for managers.
  Line collectors' 2001 base salaries were $22,487, up about 14% since 1999, accounting for nearly the entire rise in collectors' total average annual compensation to $31,812. Commissions for line collectors are hovering at about 12%.
  Despite few changes in lower-level commission rates in recent years, the potential to supplement base pay with earned bonuses is extraordinarily attractive in the current economy. The Consumer Price Index increased only 2.4% in 2002, according to the federal Bureau of Labor Statistics. The projected average pay increase in the U.S. is only 3.9% for 2003, according to Mercer Human Resource Consulting LLC.
  Of course, any national survey obscures regional variations. Sergio Seplovich, a recovery consultant based in San Francisco, says he has witnessed starting collector pay as low as $7.50 an hour in Nevada and as high as $20 an hour in Manhattan.
  The Minnesota Department of Economic Security reports that as of the end of 2002, the average hourly statewide wage for collectors was $13.57. But variations within the state were almost as great as national variations, ranging from $8.89 to $19.34 an hour.
  At both extremes and in between, incentives make the job palatable and profitable for employees. That's why Juniper's Murphy and others say that collection employees' hearts beat a bit faster when they think of ways they can rope in bonuses.
  "You have to keep it fresh by adding ancillary incentives on top of monthly goals-maybe cash rewards for (encouraging) electronic payments," he says.
  No Limit
  The tricky part of structuring commissions is to encourage people to stretch to achieve the goals, but not to make the goals so ambitious that collectors become frustrated and despair. Murphy thumbnails the effectiveness of any incentive program by figuring that the top-performing 40% of collectors should earn bonuses.
  "You should not pay (extra) for average performance," says Murphy, adding that, likewise, there should be no limit for top-tier results.
  Consistency is key, advises Kay Laffoon, president of collections-training consultancy Laffoon and Associates Inc. of Mooresville, N.C. "It has to be obvious how you can move up to get more money, as opposed to an arbitrary system," she says. "That's one of the key things for collectors-the perception of fairness and the idea that (the commission structure) is laid out and not a secret. Everyone should always know what the structure is so that they can earn their status. No hidden agendas."
  Nathan Neuman, chief executive of National Collection & Judgment Corp. in Philadelphia, thinks it's only fair to give credit card collectors "a piece of the action because they get paid so little."
  "The beautiful thing is that there's immediate gratification," he says. "That alone keeps people motivated. They can get an account today and the check tomorrow."
  Indeed, credit card collections managers constantly need to revise their commission structures because collectors know precisely how their performances improve agencies' and clients' bottom lines. It's not tough for a collector to do the math and figure out that her successful efforts are fattening the pocketbooks of others. Commissions, in Neuman's opinion, need to be so tightly tied to performance that collectors never waver in their commitment to doing well for everyone all along the food chain, not just themselves.
  The soft economy and the chance to earn performance-based pay isn't the only reason why it's easier to find qualified employees today, collections experts say. Ever-evolving technology-ranging from programs to help find missing debtors to software that scores debtors on the likelihood that they'll repay to systems that make it easy for a debtor to have a payment debited from his checking account-improves collectors' ability to recover charged-off debt or get pre-chargeoff accounts back to current status.
  Many potential hires also are glad to learn that a collections position is likely to include more palatable tasks, such as customer assistance. Those who might have shied away from what they perceive as a brass-knuckles job may be willing to take on a position that involves talking with customers about more than past-due debt. Hiring managers are finding that emphasizing the potential for lateral rotations and engaging customers in conversations that touch on positive aspects of their relationships with card issuers also breaks down the resistance of skeptical job candidates.
  "It's not hard to recruit people," says Murphy. "We're not necessarily looking for experienced collectors as much as we are looking for sales-oriented call-center employees."
  Finally, workplace policies and conditions are the unquantifiable factors that retain collectors.
  Top-performing collectors can make upwards of $40,000 per year at Credit Bureau Data Inc., a La Crosse, Wis.-based agency that employs 17 collectors. President Nancy Borgen says that it's getting easier to attract qualified people, but they stick around because the company is easy to work for.
  "For a while (in the late 1990s), you'd run an ad and get one applicant, but now we are getting much better quality and quantity of applicants," she says. "They are ... dedicated to wanting to work."
  Considering that Credit Bureau Data's pay covers a 37-hour week that offers about as much flexibility as anyone could want, it's not hard to see why annual collector turnover is only about 4%. "They can arrange their own schedules, as long as they work (a minimum number) of night and weekend hours," says Borgen.
  AFNI has a similarly enviable turnover rate, says Angelo, though he wouldn't give a number.
  "It's a combination of money and decent working conditions that attracts people," he says. "People need to enjoy where they are working and the work environment. We spend a tremendous amount of money on our facilities for an ergonomic work environment."
  Enjoy It
  Involving even line collectors in the management's vision for the collection operation's growth and market expansion counts big time. "People are spending eight hours a day with us," says Angelo. "They have to enjoy what they are doing, regardless of the pay. They say that they like being here." He adds that AFNI has "a tremendous amount of people who have been here 10 years and more."
  Making the job of persuading financially troubled cardholders and other debtors to pay past-due loans enjoyable has been a challenge for as long as there have been banks, but today's combination of pay innovations and improved working conditions could steer more applicants toward collections departments and agencies.