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Paying commissions only when the customer has paid – this may not work any more in some states. Illinois and Maryland have awarded commissions to terminated employees for sales that were booked before they left, but for which payment from the customer had not been received.
The difference is that the “commission” is communicated as a “piece of the action” (e.g., 2% of revenue, $5 per unit, 6% of margin dollars); whereas a “bonus” is a fixed incentive amount offered for achieving a specific objective, often with less offered for lower achievement levels and more for higher levels.
While many established sales organizations use the hunter-farmer model as their sales force organization model, there are inevitably geographic territories or customer segments that do not justify both “hunters” and “farmers’…
California, a state already ahead of most in regulating calculation and payment of sales commissions, has put into law the requirement to document commission plans in writing effective January 1, 2013.
Who really “owns” the commission stream? Did the sales person create it single-handedly, or was it the result of a great company offering, solid strategy, and a repeatable selling model?
This is a common question, especially for smaller companies, whose resources are limited. It’s certainly understandable for a manager to want to develop an incentive plan that only pays out of the company profits (if there are any).
Sales Compensation Quarterly, November 8, 2009 – Communicating changing sales compensation plans is never easy. The salesforce will always start with the assumption that the new plan is going to take something away from them, and will be skeptical of anything the company tries to push as a “positive change.”
My employer thinks I made TOO much last year therefore he has a new pay package for me which caps my sales commission!
No caps. We rarely recommend a sales comp plan be capped – no need to take your top performers’ motivation out. But we do recommend deceleration at high levels of attainment, per-deal caps, caps on the % of margin on a deal that may be paid to the rep, etc. – these keep pay rational…
Workspan, August 27, 2010 — It’s fall again, the economy appears to have shifted toward the positive in many sectors, and companies are thinking about redesigning their sales compensation plans for 2011. In order to ensure the redesign process and resulting plans will provide a good return, businesses should address six key areas.
It’s probably best to start with the total comp needed to attract the right kind of people into the role, and a reasonable number of appointments they should be able to set…