Should Procurement Be Negotiating Harder With Oracle?

The Register (and other sources) reported recently on a fascinating case that highlighted a number of issues – the commission paid to software sales people being one of them (and if you are a procurement executive getting ready to argue with your boss about whether your bonus is £5K or £10K this year, prepare to be really, really annoyed!).

Oracle and one of their senior sales people, Felicia Wilson, have been engaged in a protracted legal argument about the level of her bonus for work on the Pearson account. Here is the Register explaining more:

Oracle's effort to avoid paying star sales rep Felicia Wilson an arbitration award of more than $250,000 has been rejected [PDF] by a judge in New York. After 30 months of work, Wilson in 2014 landed a deal with Pearson worth more than $10m to Oracle. Under the terms of her contract, Oracle owed her $873,638.10, but Oracle said it would pay her only $616,282.31, based on changes introduced in its 2014 compensation agreement [PDF].

The legal argument was interesting in itself, and if you enjoy those sorts of issues follow those links and read more – the role of the independent arbitrator is interesting, as is the fact that Oracle made little effort to provide much supporting evidence and were “penalised” by the judge for that.

But as a procurement person, of course we were drawn to the size of Ms Wilson’s bonus. So just short of 10% of the value of the deal went straight into the pockets of the Oracle sales person. Now we don’t begrudge Ms Wilson her reward and reading some of the details (fascinating for anyone interested in employment law, software or sales commissions) we tend to agree with her case. We also resisted the temptation to stalk her through LinkedIn and ask for a loan.

However, just think about those amounts as a procurement person. If Wilson had merely received her basic salary, and Pearson had negotiated well, the firm might have got another million dollars on their bottom line that year and Oracle could still have made the same profit. With a typical company P/E ratio of 15, that gives a shareholder value of some $13 million that Pearson lost by failing to drive Oracle down by that $800K on the price.

Now we all know it is not as simple as that. But the other issue is the parity – or lack of – between the sales and procurement sides of the deal. Which procurement leader gets a bonus of this sort of magnitude?  And the procurement people may have put just as much effort into the deal as the Oracle manager did.

What insights can we draw form this?  Well, it does just make you think about the respective motivations, motivators and status of procurement and sales. “Go into sales, not procurement, young woman” might be one conclusion we could draw. And maybe when you’re in a negotiation with a software firm, you should ask how much commission their sales people are on.

Finally, as a conclusion; maybe Pearson need to look at their software procurement process too. I'd be slightly embarrassed in their shoes.

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