Sales Force

You Get What You Pay For

Rob Rodin shakes his head and chuckles at the mention of the topic. There has not been a single day in the last five years, he says, that someone -- a customer, supplier, investor, journalist -- hasn't asked him to defend his company's controversial pay plan. He usually offers the short version: "Yes, I'm the heretic who took the entire sales staff of a $600 million company off commissions, overnight, and lived to tell the tale."

The real story, he admits, is more complicated and nerve-wracking. And the payoff has been more profound. Rodin is adamant: none of Marshall's strategic innovations could have happened if the company had not first abolished its decades-old compensation system.

Marshall was founded in 1954. By the late 1980s it was a prosperous midsized player in a fast-growing industry, one of the top-ranked electronics distributors in the world. Like so many companies in so many industries, it was also indistinguishable from its competitors and managed with what passed for conventional wisdom. It had an easy-to-forget company motto, "Satisfaction Through Service," and a hard-to-argue-with goal: "Number One in the Marketplace." People were ranked and reviewed based on individual or small-group performance -- the credit department on days' receivables outstanding, division managers on P&Ls, the sales staff on gross profit dollars. Internal competition was keen -- between divisions, product lines, and especially the company's salespeople, who battled constantly to win a nonstop round of supplier promotions and contests, 15 or 20 at a time, with TVs, VCRs, and cruises awarded to top performers.

The system worked. The numbers were good. But Rodin was worried. Customers were making unprecedented demands for quality; suppliers expected new standards of service. It seemed like Marshall was running faster and faster just to stay in place.

"Something didn't feel right," Rodin says. "We worked so hard but it felt like we were burning empty calories. I'd get home on Friday and I didn't feel any different from how I'd felt on Monday. And I didn't feel like the company was any better. For all our success, there was a sense of emptiness: Are we building an institution that's going to survive?"

Why the empty feeling? "The problems were always the same," he says. "We lived from month to month. We'd ship more than 20% of each month's total sales in the last three days and stretch the warehouse past the breaking point. We'd ship orders to customers a week ahead of schedule, even though many of them measured their own performance in one-day windows. We'd hide customer returns or open bad credit accounts just to hit our monthly targets. If a product got scarce, one division would actually hide its inventory from another division -- send it out on a UPS truck so it could truthfully say there was 'no supply on hand.' And we squabbled constantly about things like how to split commissions from a customer who did design in Boston but purchasing in Texas."

Rodin hadn't grown up in the electronics business. He was a psychology graduate from the University of Connecticut who fell in love with restaurants, opened a place of his own, and lost everything in bankruptcy. He joined Marshall in 1983 and quickly started climbing the ranks -- from sales manager to general manager to vice president of sales, marketing, and operations to president and CEO. He led with his adrenal glands. He always knew how to pump up the troops. If sales were faltering he'd run around in a Batman costume or boost the company's promotions and contests. If he saw regions or divisions fighting, he'd make stirring appeals to teamwork and loyalty.

"I'd tell people, 'We've got to stop shipping ahead of schedule. We've got to stop hiding inventory from each other. We're a team; we've got to work together. Pursue excellence. Fight and win.' Then I'd show a video of fighter jets and say, 'You've got to be like a fighter pilot and kill the enemy.' I'd play rock music and everybody would hug and get in a frenzy -- and nothing would change."

One of the catalysts for change was a four-day seminar run by W. Edwards Deming, the aging prophet of total quality management. At the 1991 seminar, and really for the first time in his career at Marshall, Rodin slowed down and looked at the business from a distance. He didn't like what he saw. The company had been built around a simple idea -- buy low, sell high -- but the world had become more complicated. Marshall had prospered, Rodin says, "but only through staggering manipulation and brute force."

The problem wasn't inside the system, he also came to understand. The system was the problem. It made sense for one division to hide inventory from another; they were paid to compete. It made sense for salespeople to ship orders ahead of schedule or hide customer returns; they were paid to make their monthly numbers. The system persuaded good people to make bad decisions.