After a year of fierce opposition to a union campaign seeking a fairer pay structure for workers, In These Times has learned that the private equity-owned retailer Guitar Center plans to implement a radical shift in the way it compensates its workers: It will replace its much-reviled sales commission system with a far more straightforward protocol of hourly pay. Guitar Center, the country’s largest retailer of musical instruments, says that the shift will not only clarify payment for its more than five thousand sales associates, but also includes a commitment that every single Guitar Center employee will earn above minimum wage beginning this September.
The Retail, Wholesale and Department Store Union (RWDSU) calls the policy shift a major victory for its organizing effort, focusing on Guitar Center stores. The union believes that the company is seeking to appease frustrated workers in order to keep more of its stores away from union organizers.
After Bain Capital acquired Guitar Center in 2007, workers began complaining of declining standards, including lower commissions from one year to the next. Since last May, employees at three Guitar Center stores around the country voted in favor of union representation with RWDSU.
The union’s efforts met fierce opposition from Guitar Center management, which insists that its workers would be better off without the involvement of labor groups. The union also accused Bain Capital of deploying excessive aggression, even illegal tactics, in its past efforts to thwart union organizing. In one successful Chicago union drive employees accused Guitar Center management of threatening to shutter their entire store if the union won, an potential violation of federal labor law. Guitar Center rejected the claim, and intimated that the union had disabled one of its supporters’ vehicles on the day of the union vote.
Along with its new payment package, Guitar Center is promising that not a single of its employees will earn “one penny” less this year than they did last year. As for its promise that workers would earn above minimum wage, Guitar Center, citing issues related to competition, would not say exactly how much in addition to the federal minimum this baseline wage would be. Guitar Center says that a tiny fraction of its top sellers can stay on commissioned pay on a purely voluntary basis.
“There are definitely some optics there that make it look like we’re changing things because of the union,” adds Guitar Center Senior Vice President of Stores Kevin Kazubowski. “But we’re really changing things because Mike Pratt [Guitar Center’s CEO] is progressive and he’s looking at our company and saying, ‘Let’s fix all the stuff that’s messed up and let’s run an awesome company.’”
But the union believes it has scored a major win for thousands of the company’s employees, although perhaps at the cost of its own ease of organizing future Guitar Center stores. “In a way it’s a pyrrhic victory,” says Phil Andrews, RWDSU’s director of retail organizing. We’ve succeeded in changing the lives of thousands of Guitar Center workers while only achieving a union contract in a handful of stores. If we go away, it would be very easy for those standards to drop back down.”
In interviews arranged by RWDSU over the past year, Guitar Center workers uniformly expressed exasperation over the company’s complex commission structure, known as the “fade” system. Under this plan, workers must essentially earn the equivalent of their hourly wages in unpaid sales commissions before they see any actual commission added to their base pay, which is often minimum wage. Employees unlucky enough to find themselves asked to perform non-sales duties would often lose the chance to earn anything above their base pay. In this situation, low wages coupled with arbitrary and unpredictable decisions of management would affect workers’ ability to earn a sufficient living.
The use of complex sales commission structures is a strategy used increasingly by large retail companies seeking to wrest as much work as possible out of workers, says Mike Sweeney, a labor lawyer who litigates cases involving commissions. “Often the compensation arrangements aren’t straightforward — it’s called a commission but there are a lot of bells and whistles and twists and turns that employers use to beat workers out of pay,” he says. “It’s a way of squeezing productivity out of workers, who bear external costs that the company does not have to absorb.”
The issues with Guitar Center’s outgoing “fade” system are akin to those in the restaurant industry, where workers must make up the difference between the base hourly wage (which, for tipped employees like waiters in many states is $2.13 an hour) and the federal minimum wage of $7.25 an hour in tips before gaining any additional income on top of that, according to Shannon Liss-Riordan, a wage-and-hour lawyer.. “Restaurants will usually pay the lower tipped rate even for non-tipped work,” Liss-Riordan says.
On April 3, Guitar Center announced that Ares Management, another private equity firm, would take a controlling stake in the company from Bain Capital. The deal relieves $500 million of the retailer’s $1.6 billion in debt that had resulted from Bain’s 2007 leveraged buyout of the company.
Guitar Center says its nixing of commissions has nothing to do with the Ares deal, but is rather part of an ongoing effort to improve the company. In seeking to overhaul its pay structure, Guitar Center enlisted the help of global HR consulting firm Towers Watson to survey employees and design a new method of compensation. “What we got back from Towers was that very few companies our size pay commissions, it’s just not scalable,” says Guitar Center’s Kevin Kazubowski. “It gets out of control as your company continues to grow, and that’s what happened with our organization.”
RWDSU says that neither the new payment structure nor Guitar Center’s new ownership will change its mission. “We expect the organizing efforts to continue,” says Janna Pea, a spokesperson for RWDSU, “as workers continue to reach out to us on a regular basis.”
This piece has been updated with an additional quote from Guitar Center.