When we think about the treatment of variable pay during family leave or other short-term leave, we think about what is fair based on the details of the incentive plan in question. Specifically, we think about what the sales person is actually being paid for in a given performance period. Are payments due during short-term leave related to work performed prior to the start of the leave? If so, the incentive should probably be paid. If payments due during short-term leave relate to work that would have been performed had the sales representative been an active employee during the leave period, the incentive payout should probably be prorated accordingly. It might be easier to think about this in terms of a couple of examples:
- The incentive plan pays “now” for work completed “before” – A sales representative works for months to craft a deal. The deal closes a week after the sales representative begins family leave. The sales representative completed most if not all of the work to close the deal prior to the start of the leave. We would expect the sales representative to be paid incentive for this deal. Whether the incentive paid is 100% of the calculated incentive or a prorated amount, would most likely depend on who else was involved in closing the deal and what role they played. Bottom line, the sales results may have come to fruition during the sales representative’s leave of absence, but they were driven by significant work completed before the leave began.
- The incentive plan pays “now” for work completed “now” – A sales representative has ongoing responsibility for a group of accounts within a geographic territory. The sales representative calls on accounts regularly and maintains ongoing relationships that drive a flow of business. For every performance period, the sales representative is paid an incentive based on the aggregate performance of the accounts in their territory relative to an assigned goal (perhaps a revenue goal). If the sales representative begins family leave in the middle of a performance period, we would expect the sales representative to be paid a prorated incentive based on the number of days of active work during the performance period. Most likely a manager or peer is covering the territory while the sales representative is on leave. The “covering rep” may or may not be receiving additional compensation for their effort.
Option: pay a flat rate based on historical variable earnings: Both of these examples assume that the total payout will be adjusted based on ongoing results during the leave period. Another approach would be to simply calculate the average actual variable pay earned for some recent period (e.g., the last 12 months before the leave), and continue paying at that rate regardless of results during the leave period. This is far simpler, and may result in good parity with the family leave arrangement enjoyed by those in non-sales roles. However, this does undermine the motivational value of paying for results during the leave period which may have been significantly influenced by the salesperson before their leave.
Discontinuous leave periods: To further complicate a potentially messy calculation, there is a growing trend for salespeople to take their family leave in two or three discontinuous time periods. For example, a company with a generous 12-week policy that states an intention to offer three months at full pay for family leave may find that salespeople are taking those three months in two 6-week periods, or even three 4-week periods. In such cases it can be increasingly tricky to have a standard policy for paying salespeople some portion of their variable pay based on their contribution in the days and weeks leading up to their leave. In this case, the flat rate shown above may make the most sense.
Adjusting expectations for production following a return from leave: Just as a new hire or recently-promoted seller may have a ramped goal or other accommodation to smooth their transition as they build pipeline and move towards steady state productivity, a salesperson returning from family leave may return to an empty pipeline and need some time to rebuild. In such cases, some accommodation to share the burden of the non-productive time between the seller and the company may be in order. While there are many possible arrangements, a version of the declining guarantee may make the most sense.
Should you have a “floater” sales role to fill in for those on leave? Some businesses with the scale to have a person or two on leave at any one moment may choose to have a salesperson in the role of floater. They can be assigned to cover the territory of a person on leave, closing in-progress opportunities, and building pipeline. Most likely this person will have a higher base pay level than the salespeople they are subbing in for since their results will be heavily influenced by the prior work of that person on leave. But they should still have some variable pay to reward them for the results that come in one their watch, and likely they should also receive some variable pay for businesses that they identified which is later closed by the returning salesperson once their leave has ended.
Check with counsel! Of course, the above are only general guidelines and not legal advice. Talk to your legal advisor to evaluate any proposed approach in light of applicable state laws. Some countries outside the US, as well as some states in the US (the state of California in particular), have very specific guidelines about what constitutes a commission and how commissions should be paid.