The sweeping cancellations and pandemic-related uncertainties have exposed vulnerabilities in the way third-party planners get paid, which is pushing some to redefine their contracts in order to protect their interests. Is this sustainable?
Third-party planners rely on hotel commissions for a large portion of their income, and they've been burned by these commissions structures in the past. The pandemic has exacerbated the challenges associated with the commission system and has left many planners in the lurch without any financial protections for event cancellations and changes.
In response, many independent planners and venue sourcing contractors are making contractual changes to protect themselves, introducing new clauses into their own contracts with clients and negotiating better protections with hotels.
Notably, this de facto stress-test on their client relationships has proven the value of their services as they rebuild their businesses on new, fairer foundations. Has the pandemic changed the game for them?
Commission Structures Present a Conflict of Interest
The current commission payment system presents an obvious conflict for independent planners. As Magdalena Bonnelly, founder and CEO of Event Strategies, puts it, “I’m expected to represent the client’s best interests and negotiate the best terms and conditions possible for them, but I’m being paid by the hotel that I’m negotiating with.”
This leads to what Bonnelly calls an ethical dilemma since — although she always puts client interests first — planners are essentially cutting into their own income by negotiating lower room rates or better attrition policies for their clients.
Covid Exacerbated Existing Challenges
The failure to appreciate this fundamental conflict is one symptom of a larger problem that was made painfully clear during the pandemic: this arrangement doesn't properly value third party professionals' labor.
“The way third-party planners present their job to the corporate clients who hire us is fundamentally misguided because it’s being presented as a free service. But that service is not free, and that’s where the fundamental change needs to happen in order to build an agile and sustainable business model.”
-Magdalena Bonnelly, Founder and CEO, Event Strategies
Most programs and events were cancelled or postponed in early 2020, but independent planners and venue sourcing contractors were left with little to no protection from the fallout. "There's no responsibility on either side — the client or the hotel — to pay a percentage of cancellation fees, etc.," notes Bonnelly. "There’s ultimately nothing in place to provide some protections to the independent third-party planner."
Leanne Calderwood, vice president of global accounts at site selection firm ConferenceDirect, shares that when Covid hit North America in March 2020, “all of us in site selection basically saw close to 100 percent of our business completely decimated."
Although in many ways Calderwood functions like an independent venue contractor, the size of the organization that she's affiliated with has afforded her and other associates opportunities that independent planners may not have access to. This includes partnerships with virtual event platforms, through which they receive some commissions. “It doesn’t completely achieve the income that we were achieving as associates prior to the pandemic," says Calderwood, "but it is one way that we’re still seeing some income in this post-pandemic time.”
Working Towards a Fairer Future
Bonnelly has felt for a while now that the existing commission structure has not been working and is not sustainable, but the pandemic has intensified the problem and has led her to begin including protections in her contracts. "The contract between myself and the corporate client that’s hiring me needs to include standard terms and conditions, including cancellation terms, like any other contract," she notes.
Calderwood has taken a similar approach. Even before the pandemic, ConferenceDirect offered associates the option to contract directly with clients, which provided them with certain protections in the event that the program canceled or changed in any way.
"It was a practice I personally didn’t pursue prior to the pandemic, but now, I’m having discussions with my clients about future programs, and we have contracts in place about how I will be remunerated if that program changes or cancels throughout the RFP process, throughout the contracting process, and post-contract as well.”
-Leanne Calderwood, VP of Global Accounts, ConferenceDirect
For both Bonnelly and Calderwood, these conversations and negotiations with clients have mostly been going smoothly, which is promising for the future. “The clients that I’ve had to do that with are very understanding and are comfortable with the contracts," says Calderwood. "That contract becomes a negotiation in and of itself — it’s not a one and done deal.”
Bonnelly shares that certain clients are open to the idea, which presents her with an opportunity to explain the ethical dilemma faced by independent planners. Others may not want to change the way things have always been done, but for independent entrepreneurs like Bonnelly, this can simply be a matter of fit: "If someone can see where I’m coming from and can appreciate it, that’s someone that I want to work with as well. It becomes a relationship that is mutually respectful.”
She encourages anyone in a similar position to negotiate a retainer with clients to ensure that they're not working for free and to "have honest and straightforward conversations with both parties: the client and the supplier.”
The situation between third-party planners and hotel commission structures has been a source of tension for years, but it may have finally reached a breaking point. While the pandemic has left many eventprofs in a dire financial position, those who rely on commissions were particularly exposed due to a lack of contractual protections.
Independent planners and venue sourcing contractors are now taking proactive steps to ensure that they are better prepared for future crises and treated more fairly in general. Some clients have not been particularly amenable to these changes, but most seem to be open and understanding, hopefully paving the way for a more equitable system.