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This article appears in the April 2009 issue of ISO&Agent magazine.
The recession is causing many business leaders to rethink how their companies generate revenue and create expenses. But as this year's ISO&Agent survey of its readers found, most in the ISO and merchant-acquiring industry expect little change in their wages and compensation.
Fully 69% of respondents expect their wages and benefits to remain the same this year as in 2008. That is just a few percentage points more than the 62% last year who believed their 2008 compensation would remain the same as in 2007 (see charts beginning on page 15).
The survey, started in 2005, found that sales performance continues to be the primary factor in determining whether to award individuals bonuses. This year, 66% of respondents said sales performance determined their bonuses compared with 69% who did in 2008, 60% in 2007, 49% in 2006 and 68% in 2005.
Most in the industry see little reason for the importance of sales performance to diminish.
"Our program is simple," says Andy Pitts, president of MLS Direct Network Inc., a Birmingham, Ala.-based ISO. "We have 80% residuals. That doesn't change." Residuals are a portion of the transaction fee that represents revenue for the ISO and sales agent.
Residuals Hold Value
That steadfast adherence to paying out 80% of residual income to MLS Direct's 75 partner offices may seem paradoxical amid a tough economy that has seen some compression in transaction volume. But the partners, and the agents working for them, say residuals can counteract that compression, Pitts tells ISO&Agent.
"We are as busy as we've ever been with new business," says Pitts. "That seems to help offset some of the volume compression." And he sees no reason to change the compensation plan for the partners who sell merchant accounts, especially if they are more experienced salespeople.
Heartland Payment Systems Inc. is another payment-industry company that sees little reason to alter its compensation structure, even though the Princeton, N.J.-based processor is embroiled in the fallout from a major data breach.
"Our 2009 core compensation model will remain unchanged compared to previous years," Sanford C. Brown, Heartland chief sales officer, said in a statement to ISO&Agent. "We believe our model rewards our personnel for the right behaviors in supporting the company and our customers, and [we'll] continue to apply those same values and rewards going forward. Additionally, we will continue to look at creative ways to enhance our other rewards and incentives to recognize the efforts of our sales professionals in creating value for our enterprise, our customers and our shareholders."
At the end of 2008, Heartland had 1,459 salespeople that worked directly with merchants, according to comments made by Robert O. Carr, Heartland CEO and chairman, during a conference call with analysts in February.
As the economy sputtered along last fall in the past year, ISOs and acquirers opted to cut expenses and to examine which groups of merchants held the best profit potential, which likely led to 2009 sales goals that were not overly ambitious, says Donna Embry, senior vice president at Payment Alliance International, a Louisville, Ky.-based ISO. Now as ISOs find their budget goals for expenses and revenues are working, they have confidence to sell new services to existing merchants and to recruit new accounts, she says.
Such confidence also gives many merchant salespeople optimism in their compensation plans, Embry says.
What is changing is the reliance on counting a merchant application as a success, instead of the harder-to-get metric of whether the merchant activates the account, she says, noting reliance on merchant applications is ill-suited to the challenges of today's marketplace. An agent concentrating on merchant applications will not see residual income if the merchant fails to activate the account.
"Those are toxic assets," Embry says. "How many of them actually perform?"
Embry says she has yet to see a compensation model that relies solely on merchant applications sans activation that provides long-term benefits.
Commissions from residual income and equipment revenue loom large in the eyes of survey respondents, much more so than last year and in 2007. In fact, this year's ISO&Agent compensation survey found that 55% of respondents said a better commission would improve their compensation plans, compared with 32% who believed so in 2008 and 39% who did in 2007.
The survey also found that 45% of respondents made more than 76% of their earnings from commissions, a jump from the 33% who said so last year and from the 28% who did in 2007.
One potential change in ISO compensation plans is the inclusion of a salary with bonuses. Embry foresees that model developing as companies examine the types of merchant accounts they have and the industry overall matures.
While not relying on residual income, the salesperson's incentive would come from bonuses based on the performance of their merchant accounts, she says. For example, persuading a merchant to start a loyalty program might include a bonus for the sign up, and additional money if predetermined transaction volumes are reached.
Embry acknowledges the salaries may be small, placing greater emphasis on merchant-account performance.
Pitts is less sure that a salary and commission variant is manageable for a diffuse organization.
That would mean, in the case of MLS Direct, managing the salaries and commissions of the 75 partners and the scores of agents that work for them, something Pitts does not contemplate fondly.
"That's a hard model to manage when you start to pay a salary," he says, noting that without the allure of a residual income, sales agents might get complacent. "You'd have to monitor them to ensure they're not taking advantage of the salary," he says.
Free No More?
In the past few years, free-terminal programs quickly gained favor among some ISOs as a way to entice merchants. In doing so, the prevalence of commissions agents used to make from leasing terminals to merchants waned. Now some of the forerunners of the free-terminal model, while not abandoning it, are adding another layer of equipment for agents to generate revenue.
MLS Direct's Pitts says the free- terminal model may disappear. "There's a lot of pressure on that model that might make it change," he says. "It has hurt income in general because it took away the leasing opportunity."
Many sales agents benefit from leasing equipment because it provides money upfront while the merchant's transaction volume had time to grow and develop as a solid residual stream, Pitts says.
Whichever compensation model an ISO or acquirer chooses, commissions remain a mighty incentive for salespeople and their managers.
