Question

Our plan document is clear that no payment is due an employee who is not active at the time the payment is made. We pay quarterly, and will have a reduction  in force before the next payout it due. Do we pay the terminated employees?

Answer

It’s important to think carefully about the message you’re sending to your other sales people, other employees, investors, and prospective future sales people. A couple of case examples:

  1. If the sales person did a great job and their territory imploded and just no longer needs coverage (customer merged with another, competitor moved headquarters there), and if the payment due is modest, then I’d say pay it.
  2. If the sales person is the beneficiary of a dramatic windfall and has had attitude problems and is not a great favorite of their peers, then perhaps you don’t pay (or pay a significantly reduced amount).

If the company is in big trouble, then it would be inappropriate to pay employees handsome commissions that might not be necessary if it further risks your ability to survive, continue to provide employment for those remaining, and support your customer base. On the other hand, if the company can afford the payments and the good will seems worth it, then you should probably pay. Your remaining sales people will watch this carefully, and those with other options will be thinking about those options. How you treat this departing cadre could have a real effect on who you manage to retain into the likely difficult coming months and years.

Also keep in mind the fact that your only choices aren’t to pay or not to pay. You could pay a reduced amount (e.g., 50%) to the terminated employees; you could create a sliding scale based on tenure and pay the full amount to those in the role for 5 years or more, 75% to those with 2- 4 years of service in the role, 50% to those with 1 year of service in the role, and nothing to those in the role less than a year (for example). If you need a policy to be consistent across a number of people, consider making a list of all the affected people and making a quick note of what seems fair to each, then “zoom out” and see if you can see a pattern that you could turn into a policy.

And finally consult your legal counsel. There are laws that govern this in several jurisdictions, so you may or may not have as much choice as you’d like, depending on how your plan document is written and what laws apply.

Donya Rose, CSCP,  is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.

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