Commission structure: paying for the behaviour you actually want

A commission structure is a statement about what the business values, read by the people whose income depends on it. Whatever it measures will be optimised — including the parts you did not think about — which is why most problems with commission are not about the rate but about what the rate is attached to.

What a commission structure must define

• What triggers payment: an order signed, an invoice raised, or cash received. These produce very different behaviour.
• The base it is calculated on — revenue, gross margin, or units — which decides whether discounting hurts the seller or only the business.
• Thresholds and accelerators, if any, and whether they reset monthly, quarterly or annually.
• Treatment of renewals and repeat business, which is where structures are usually silent and arguments usually start.
• Clawback for refunds, cancellations and bad debts, with a stated window.
• Who owns a deal involving several people, decided in advance rather than after a large one closes.

Paying on cash rather than on signature

Paying when the order is signed is simpler and rewards closing; paying when the money arrives rewards closing deals that are real. The second is better for the business and slower for the salesperson, which is why the usual compromise is a split — part on signature, the rest on payment. Where customers are large and slow, paying entirely on cash can mean a four-month delay that nobody can live on, and that is a cash-flow problem for the employee rather than a motivational lever. Decide it deliberately; most companies inherit whichever version the first salesperson negotiated.

Commission on revenue makes discounting free for the person giving the discount. If margin matters, pay on margin — otherwise the structure actively pays people to sell cheaply, and then the business is surprised that everything closes at the floor price.

Why complexity defeats the purpose

A structure the recipient cannot calculate does not motivate anybody, because they cannot see what to do more of. Four tiers, three multipliers and a quarterly accelerator produce a number that arrives as a surprise each month, and surprise is the opposite of incentive. The test is whether somebody can work out their own commission on the back of an envelope and predict what an extra deal is worth — if not, the structure is a bonus scheme with extra arithmetic, and a simpler one would cost less and work better.

Keeping it honest

1. Write it down, with examples, and give everybody affected a copy rather than explaining it verbally.
2. Show the calculation on the payslip or alongside it, so disputes are about facts rather than about trust.
3. Change it between periods with notice, never retrospectively — a mid-quarter change destroys more goodwill than the money saved.
4. Cap it only if you mean it, and say so upfront; a surprise cap on somebody's best month is remembered for years.
5. Review what the structure actually produced each year, including the behaviour you did not intend.

Ettex Sheets is the honest home for the calculation — deals, base, rate, adjustments and the resulting figure per person — which makes the monthly conversation a check rather than an argument. What was sold and to whom comes from the sales record, and keeping the two together is what makes a clawback traceable rather than contested.