Skirts, Shirts, and Securities: The Fate of Small Commissions and Big Bonuses
Ina Bromberg genuinely likes to outfit people. Fashionable women check in each season at the Madison Avenue shop where she works to say, “You know what I like: What have you got for me?”
Trim and well dressed herself, Ina sells petites at the flagship store of a designer brand with several hundred outlets. Even I had heard of the label. But I had to ask its exact place in the fashion hierarchy. “We fall into a niche below Barneys-Bergdorf-Chanel,” she explained.
In the course of a twenty-year career at “the Boutique,” Ina had been its top-earning national sales associate more than once. Over the years she’d seen her commissions rise and fall according to varied and sometimes confusing formulas. At one point you earned commission only when you sold three or more items to one individual. At other times commission started only after you sold $350 worth of merchandise per hour, averaged daily. But with the recession it became very simple: the company ended commissions.
It also moved the sales staff onto flexible schedules. “On Thursday we are told what our schedule will be for the following week. You can request a change if you have something like a doctor’s appointment. But you must do it two weeks before. So they print a schedule for the following week, and they expect everyone to jump to that. But if you have a request, it has to be two weeks’ notice.
“When they told me my new hours that first week, it was down to ten. [Ina was already down to twenty-five hours a week by choice, but she still had benefits.] I said, ‘Why don’t you just lay me off? I can collect unemployment.’ And she said, ‘No, no, it won’t be this way every week.’
“Now, in a way I don’t care how many hours I get. My husband is retired, we don’t depend on the income, I just like getting out of the house and seeing my regular customers. Here’s the problem: There’s an article on a fashion Web site about the Boutique. Read the responses. These are by people who worked in the office—probably not anymore. They say that in some of the stores they’ve taken all the full-time people and made them part-time. And with that there’s no more sick days, no more vacation days, no more personal days for anyone. They say they’re going to do that to all the stores, even New York. In our store we know they’ve continued the health benefits until March. What will happen after is what we’re trying to find out.”
“Do they say this is just for the recession?” I asked. “Do they say things will go back to normal when business picks up?”
“Not that I ever heard,” Ina answered. “I think—and I’ve been saying this for a year and a half—I think their ultimate goal is to have all part-time salespeople working shifts of four and a half hours. That way they’re not responsible for lunch, they have a lot of bodies, they pay no benefits, and it’s a constant turnover. This is what I think they want even after the recession because”—here she leaned in for emphasis—“they haven’t stopped hiring people.” She checked to see if I grasped the significance of that.
“When you take on someone for fifteen hours a week, a shift here, a shift there, you certainly don’t get someone who’s making a profession out of the retail business. Those days are gone. There was a time you came in, you worked full-time, you were sales associate or a desk associate, and you might have thoughts of moving onto the corporate ladder. This is not what you’re taking onto staff when you hire people for five-hour shifts.
“My salary has been cut down to probably a fourth … No, not cut by a fourth. I make a fourth of what I made a decade ago. But I’m ready to retire. There are a lot of single mothers working in this store. A lot of them are going to school. But this is what some of these people are going to be doing their whole lives. I really feel terrible.”
As for Ina herself, she thought she’d probably keep working as long as they give her convenient hours. “I always enjoyed greeting people and speaking to them in a superficial friendly way. That’s my outlet for being a little creative, looking at people and thinking what they might wear.”
Ina and I spent the rest of our time talking about clothing. She deplored certain of the Boutique’s merchandise cutbacks. They had eliminated size 14 petites. “People don’t realize that petite is a matter of proportion.” She just learned that there would be no size 5½ in the fall shoes. “And what could it cost to keep one narrow black belt in a small size in stock to complete an outfit?” To Ina this shortsighted cost cutting eliminated the special features that would bring shoppers back into the Boutique after the recession. Special features like herself, I thought.
I mentioned that a stylish friend once looked me over and said,
“You can get away with those thrift store jackets if you just go into the Boutique and get yourself one pair of black pants that really fit.”
“Oh, you look fine,” Ina reassured me. “But we can still do black pants.” She took my address and promised to send me a notice next time the Boutique had a sale on petite pants.
And if I wanted a good buy on a cashmere sweater to go with the pants, Bendel was closing its clothing department, Ina told me. It would also be a good place to find some unemployed salespeople, she suggested. But I had an appointment with an unemployed securities analyst the next day. I like cashmere, but I wasn’t interested enough to stop at the sale on the way to our meeting.
Patrick Dolan, the living cliché of this recession, was a young man who’d been earning somewhere in the low hundreds of thousands just a few years out of college, until his hedge fund shut down abruptly toward the end of 2008. I tried to figure out exactly how much he’d been earning; he countered by explaining how hedge fund compensation works in general.
“The hedge fund industry is bonus-driven. In addition to a base salary, the researcher gets one-third of the profit the company gets from the stocks he recommends. Say they buy a stock at 10 and it goes to 100 by the end of the year—say 110 to make the math easy. The investors made 100. The fund charges 20 percent of that, which is 20. Assuming nothing else, my bonus would be a third of that or $7.” (That’s $7 times the number of shares purchased by the fund, which is presumably in the tens or hundreds of thousands.)
I doubt that Patrick picked many stocks that went up by 100 points in a calendar year. Still, he’d been a researcher during a few pre-crash years when stocks generally went up. And stock pickers don’t give back their bonuses when the stocks they picked later go down. So although he’d worked for a relatively small hedge fund, his bonuses would easily have been in the low six figures.
In any case, Patrick saw no sense to job hunting in other fields where he’d be up against unemployed people with better qualifications. Besides, he loved stock picking, he was good at it, he said, and he intended to stay in an industry where he could make bonuses based on his own skill.
I told him about the saleswoman I just met who loved outfitting people and was skilled at it. But with the recession, everyone at her shop had been moved onto flexible shifts with no commissions. “Her pay is down by three-quarters, she says. And she’s worried that things will stay that way even after the recession is over.”
“They might,” Patrick answered. “Some of the most innovative businesses and business theories have come up during tough times. For example …”
I was so nonplussed that I could hardly listen to his examples. I called Ina that evening to tell her about the stock picker who wanted to stay in an industry that awards $100,000-a-year bonuses but thinks that her company may have hit upon an “innovation” by getting rid of sales commissions.
“That was his take? It’s innovation?”
“Well, he’s young,” I said, making an excuse for him. “He knows stock picking; everything else is textbook business school stuff.”
“Maybe he’ll get ‘innovated’ in his next job,” Ina replied. And our conversation turned from callow youth to cashmere. There wasn’t much of a selection left at Bendel, Ina informed me. I’d missed the window of opportunity. But once again, she promised to keep her eye out on my behalf.
————
Patrick isn’t out to get people like Ina. It’s his profession to spot the practices that would give certain companies an edge. And though he’d been unemployed for nine months, he kept his stock-picking skills honed by looking out for businesses that can keep share prices up in tough times. He had to keep up with innovations, as he’d been asked to name some of his current stock ideas at job interviews.
I asked about labor-cost innovations in his own industry. “Do you think that researchers like you will be offered less pay after the recession?”
“Hedge funds are very small organizations,” Patrick told me and cited some as small as three to six people. “If you think about a hedge fund with $500 million in assets, you might have fifteen employees running that. If the fund makes 20 percent return for its investors, the fund itself generated $20 million in fees. So if you had twenty employees, that’s $1 million per employee. The owner of the fund will keep a lot of that. But that’s still a lot left over.”
So although the 30 percent bonus is not an entitlement—“You’ll never find that in writing,” Patrick said—he thought that hedge funds were not likely to deviate much from the customary. After all, “the people who really generate the profits for the firms are the researchers. And the owners don’t want anyone working so close to them to be unhappy.”
In the meantime, Patrick and his wife, still employed at another hedge fund, had been making some recession adjustments. “We used to eat out almost every day. Now we’re cutting back on things. Like where I used to automatically take a cab, now I might take a subway, little things, things that make sense. I spend a lot of time with my dog. I had a dog walker before. Now I take care of her during the day.”
“But it seems like you could probably manage if you never worked again,” I said. “I mean, if your wife keeps working.”
“Financially, yes; emotionally, no. It’s, I just …” Patrick wavered, perhaps on the verge of telling me or himself something. “It’s just not good for my psyche; it’s not good for my …” He let that go and abruptly shifted directions.
“Bottom line: here’s the way I think about this situation. The economy will come back. Whether it’s six months or five years, we will be fine as a country. But if I leave the hedge fund industry and I go work somewhere else, the odds of me getting back into the business are slim to nothing. I love this industry.”
I’m sure Patrick endured mental distress that he might have told me about if I’d been more empathetic. But I was too put off by his admiration for the one innovation that worries me the most—making people “contingent.”
When we left Ina Bromberg, her commissions at the Boutique had been eliminated and her hours temporarily reduced, but she still had her health insurance. There were rumors that the company was going to get rid of all staff salespeople and end all benefits.
Eventually, the managers called the remaining full-timers into the office and gave them two choices. They could take a severance package and collect unemployment, or they could stay, if they wished, but as part-timers with no benefits. In a way, the Boutique had made U.S. unemployment compensation a part of the company’s buyout package. Managers were telling the regular staff, “You go voluntarily, and we’ll say we laid you off.”
According to Ina, every full-timer took the buyout. The Boutique was now closer to what Ina had postulated as its ideal staff—part-timers with no benefits working flexible, lunchless, four-and-a-half-hour shifts.
Ina had been tense while things were uncertain. Now she sounded not only relieved but satisfied with her own deal.
“So far, knock wood, they let me do what I want about my schedule. I took the whole month of December off. I still enjoy going in to see my old clients who learn my new hours. In a way it was already a semiretirement for me. I didn’t depend on the benefits because of my husband. It’s also a good deal for college students if someone’s paying their tuition. They can come in a couple of evenings or weekends and earn spending money.”
Temps
When McDonald’s was a new phenomenon, its part-time, minimum-wage jobs were presented as a way for high school students to earn spending money. The company even lobbied Congress to pass a subminimum youth wage as a kind of internship grant for introducing so many American youth to the discipline of work. Now the Boutique has become a good place for college women to earn spending money. With that, another great swath of breadwinner jobs disappears.
Despite Patrick’s choice of word, there’s nothing terribly innovative about transforming steady jobs into contingent work. Just-in-time staffing has been on the increase since (you guessed it) the 1970s. By 2008, eighteen million people, or one-eighth of the U.S. labor force, were hired as consultants, temps, adjuncts, e-lancers, day workers, or under one of the many other labels used for people who don’t have what we used to think of as a regular job. (These statistics come from Steven Greenhouse’s Big Squeeze: Tough Times for the American Worker.)
At first this hit unskilled workers like those Big Box warehousemen. But now brain workers like Feldman, of the Pink Slip Club, have increasing difficulty finding staff positions. From low-paid university adjuncts to high-paid mercenary soldiers, skilled work like teaching and assassinating is increasingly handled on a per diem basis by freelancers.
This brings with it a demotion that’s often more than just financial.
The nineteenth-century phrase “factory hand” suggested an interchangeable part or tool to be used as needed. There might be an almost familial feeling between the owner and the salaried clerks in the office, but that didn’t carry over to the factory floor. You don’t treat a hand the same way you treat a whole person.
An employer’s diminished investment in his contingent workers affects their relationships to each other too. When a permanent employee is sick or injured, the company pays his medical bills, his colleagues sign a get-well card, and a few may visit the hospital. But if a Big Box warehouse temp gets run over by a bus, the company phones the staffing agency to send a new one. The get-well card and the visit are unlikely.
Patrick is probably right that the owner of a hedge fund won’t want the half a dozen researchers and perhaps his personal secretary to be alienated from the enterprise. There’ll always be a core of real employees in any company. But what if he’s also right that an important “innovation” of this recession will leave another large swath of Americans out on the periphery? Aside from being painful to individuals, it’s dangerous to a democracy when so many of its citizens are marginal, contingent, and peripheral.