Best practices for commission structures
If a five-year-old can understand the commission structure, then that’s a great start. On the other hand, if you need a math’s degree to understand it, it’s probably not that effective.
A very common complaint I receive from candidates is that the commission structure is hard to understand or it’s hard to obtain – i.e. When the hiring manager says, “we’ll only release it when we put forward an offer to you.”
This is a big mistake because it puts up one extra barrier that isn’t necessary during the hiring process.
In this market, it’s hard enough as it is finding top performers, so my advice is to make the commission structure accessible and easy to understand, with real-life examples of the top earners in the team and what they were paid recently.
As a general rule, a new business acquisition role should have a 50/50 split between base and comms, and that’s all well and good, but it’s also important to give candidates a roadmap on how they can get to that magic OTE.
Here are six points I believe make a strong commission structure;
1. Paid monthly or quarterly (monthly especially for high volume/velocity sales)
2. Uncapped
3. An accelerator in place (big jump in the % paid) for achieving a set number well above target
4. 4. A reasonable threshold with a tapered % up to the strong accelerator
5. A clear and easy to understand policy on claw-backs
6. Not dependent on others’ performance
I find that discretionary plans often have the effect of de-motivating strong performers because (as per the definition) it’s up to an individual and is subjective. Therefore, it rarely ends well.
In some cases, team commission structures can be a good idea but generally causes resentment when a top performer carries others within the team.
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