An Economic Parable

Jim created a real estate business and hired salespeople. He remembered what it was like to be a salesman and didn’t like the idea of only getting 50% of the commissions while his broker took the other half. He decided to treat his salespeople well and give them a 90% commission if they paid their own expenses. With his 10% he could pay his overhead and maybe have a little left over. This, in addition to commissions on his own sales, would make him a comfortable living.

Everything went well for a while. Jim’s company drew the more enterprising and capable salespeople who were happy to work hard and make that extra commission.

In the midst of prosperity, a property manager called on Jim and said, “I know you’re trying to live frugally here, but I understand your salespeople are doing well and I think you deserve some finer, more lush offices. Come with me and let me show you the offices across the street.”

Jim followed him and was struck by the beauty and quality of the offices. The manager said to him, “Don’t you think you deserve a little more status and quality than you have now?”

The more Jim thought about it, the more he felt the man was right. The trouble was that he was not collecting enough commission to pay for the new building so he presented a plan at the next sales meeting.

Jim spoke, “My fellow salespeople. We have all been working hard and prospering. It’s time to take advantage of that prosperity and move up in the world. I’ve decided that we are going to move into the nicer offices across the street.”

Everyone seemed pretty happy with this until Jim got to the next part. “Unfortunately, the new offices will cost more money, so the house will have to take a bigger commission split. From now on, you will get an 80% split instead of 90%.”

An audible murmur went through the group.

Jim continued, “That may sound like a lot, but remember, the other companies only pay a 50% commission. You are still 30% ahead.”

The top producers were especially upset because they realized they would be paying for most of the extra expenses. The low producers liked the idea of getting a nicer office paid for by those who made more than they did. “It only seems fair,” they thought. “Those high producers make a lot more than us, and we’re all doing the same work. They should be willing to share the wealth.”

They were only in the new building a few weeks when Jim realized that other offices of this quality had a secretary so the broker did not have to do all the paperwork. At the next meeting Jim announced, “My friends, I am overworked with all the paperwork, so I am hiring a secretary and adding computer terminals. Because she is working for us all, all will have to pay. I’ll have to assess each of you $150 a month so we can pay her salary and buy the computers.”

This time, the low producers grumbled the most, for the $150 was more difficult for them to cough up. “What is this?” said one. “We signed up here because it was the best deal in town, and now your changing everything.”

“It’s still the best deal in town,” said Jim. “Look around and try to find something better and I think you’ll stick with me.”

Jim was right. He still had the best deal in town and the salespeople stayed with him.

A few months later Jim fell head over heels for sexy blonde with expensive tastes. He traded his Volvo in for a new Mercedes and bought her some expensive clothes and jewelry and quit doing personal sales so he could spend more time with her.

After this, there was only one thing for him to do. At the next meeting he told his salespeople, “My friends, I have found that it costs more to run this business than I thought and we are also expanding our office space and adding new salespeople. The house is going to have to take a larger split. Instead of an 80% commission, you will receive 70%.”

He could tell immediately that few supported the change, so he added, “Part of the expansion will provide you with a beautiful new conference room, a professional coffee service and extra computers.” Jim knew that only about part of the increase would be needed to cover these expenses, with the rest going to his own personal spending.

Many grumbled, but stayed on because it was still the best deal in town.

A few more months passed and Jim noticed some dissatisfaction with his salespeople. It appeared that 10% of his people made about 80% of the sales and consequently the income. The low performers were concerned and told Jim that it was not fair that the top salespeople made so much money.

“We work here just as many hours as they do, yet they seem to get all the reward,” they grumbled. “The rich salespeople should pay more overhead and share some of their commissions with us.”

Jim saw their point and also saw how he could get more money for himself to support his expensive girlfriend.

At the next sales meeting he spoke, “My friends, it has come to my attention that we have had some inequalities among our staff. Everyone here works hard, but some make much more than others. Some of the salespeople are hardly able to put food on the table and pay the rent. To solve this inequity, we will change the commission of the top earners from 70% to 60%. With this extra money the house will supply bonuses for those who have low sales during a particular month.”

The 80% who had low sales thought this sounded like a great idea, but the top earners were angry. One spoke up, “When you lowered our commissions in the past, I compensated by working harder. I am now working as many hours as possible and cannot make up for any more reduced commissions. I have a lot of expenses that the low producers do not realize. For one thing, I spend ten times as much on advertising as Ralph does, who just sits around the office and drinks coffee all day. I also have an expensive car, but that helps me attract more clients because it makes me look successful. The point is that I need all the money I am making – and that’s why I work so hard because I have a place for all the money I make.”

The other top producers murmured in agreement.

Jim spoke again, “To make it easier for all of us then, part of the bonus money will go to an advertising fund, and when the calls come in we can take turns taking the calls.”

The top producers did not like this, but Jim was firm in his decision, and there was nothing they could do but make the best of it.

Time passed and the volume of sales went down company wide. The top earners just didn’t seem to have the fire in the belly they way they used to. Then there was a powerful economic downturn that caused another big drop in sales. Jim’s income was down, but he was afraid to hit the group with another increase, so he borrowed a large amount from several banks to run his company and keep up his lifestyle. This only worked for a while, and after a short time he was out of money and in danger of losing his pretty blonde girlfriend.

He called another sales meeting.

“My friends, I hate to tell you this, but this company is in big trouble. We are in a financial free fall. I have to take extreme measures right away or we will have no company at all. I am going to have to reduce all commissions down to 50% and increase your office expenses to $300 a month.”

A top earner stood. “We joined this company because the opportunity was so much better here, but now we are no better than the other companies and worse than some. I warn you – this measure is going to create major problems.”

“My hands are tied,” said Jim. “I have to do this for the sake of the company.” He proceeded with his new plan.

The top producers were very upset and held a private meeting. Dave rose and said, “The company we joined no longer exists. Let us create a new company patterned after the old one that again has minimal administrative costs and gives us a 90% commission.”

The group agreed to this, left the original company, and created one of their own that prospered exceedingly.

Without its top producers, Jim’s company went bankrupt. He eventually got rid of his girlfriend, started over with his original 90/10 split, and again did sales work himself.

Other companies in town followed suit until the high commission, low-overhead program was common.

The community turned out to be a great place for salespeople who wanted to work hard, pay their own expenses, and have abundance for themselves.

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