Getting paid in whole or in part on a commission basis means that your performance and success on the job will have a direct impact on your paycheck. Being paid using a commission structure gives you, the employee, control over how much you earn during a specific period, and in many cases offers you unlimited earning potential based on how good you are at what you do (and how successful you are). Commission pay structures usually come into play when you’re hired in some sort of sales-oriented job.
There are many different types of commissions and many different ways commissions can be calculated. Coming up with a commission plan that suits your needs will involve careful negotiation with your employer and having a good understanding of the specific terms used to outline how you’ll be compensated for your work. The following are some of the terms you’ll need to understand when evaluating a commission-based job opportunity:
Base plus commission For salespeople, this is a common compensation method. It involves receiving a pre-determined base salary plus some type of commission on the sales you actually make. The commission rate you’ll be paid will probably be lower than if you were on straight commission, but whether your sales are high or low in a given period, you’re guaranteed to receive at least your base pay, which is yours to keep.
Draw against commission This type of compensation plan is totally commission based. At the beginning of each pay period you’re given a specific amount of money in advance, called a “pre-determined draw”. This draw is deducted from your commissions at the end of a pay period. If you don’t cover your draw during a pay period, you will owe money to the employer, which can often be paid back later when you have a more prosperous period. However, if you have several poor performance periods, you could run into problems.
Residual commissions Earning residual commissions is a salesperson’s dream, because as long as their accounts are generating revenue for the employer, the salesperson continues to receive a commission. For example, many insurance salespeople receive residual commissions for all of their clients, as long as their clients continue paying their premiums, which could be for many years after the initial sale is made. Through negotiation, you may be able to continue receiving residual commissions owed to you, even after you leave the company. Many employers are reluctant to offer this type of compensation deal.
Salary plus bonus If this is the method of compensation you agree upon, you’ll receive a pre-determined salary each pay period that is not impacted by your performance. At the end of a year (or pre-set amount of time), you’d also receive an added bonus if your performance meets or exceeds specific goals.
Salary plus commission This is the same as a “base plus commission” compensation structure.
Straight commission You earn a percentage of your sales. Unless you have proven sales skills and you’re positive you’ll have immediate success selling a specific product or service, this type of compensation can be a bit risky, since you only get paid based on how much you sell. If you make no sales, you take home no paycheck, even if you put in a 40+ hour work week. For talented sales people, this is an attractive compensation deal, since their income potential is entirely in their control.
Straight salary As a salesperson, you’ll earn a straight salary that is in no way impacted positively or negatively by your sales performance. For a salesperson who is developing their skills, this is a very safe compensation method, although there is no real incentive to excel. Poor performers, however, tend to get fired, since most companies won’t continue to carry salespeople or salary-based workers who aren’t performing up to expectations.
Variable commission This type of commission structure is similar to a straight commission, however, the commission rate you’re paid goes up or down based on pre-determined circumstances. Some salespeople try to negotiate a higher sales commission triggered by reaching or exceeding specific monthly goals in order to incorporate an incentive plan into their commission-based compensation package.
Copyright © 2000 Jason Rich; All Rights Reserved
The Unofficial Guide to Earning What You Deserve
Published Under License from Hungry Minds, Inc.