Commision

Both are variable, and they behave differently in ways that matter.

A bonus is usually periodic, often discretionary or target-gated, and typically capped by the size of a pool. Commission is calculated by formula on each qualifying transaction, is normally uncapped by design, and accrues continuously rather than at a review point.

The consequence is that commission is far less forgiving of imprecise drafting. A bonus scheme with an ambiguous clause can be resolved by judgement at the point of payment. A commission plan with an ambiguous clause produces a calculation the employee can perform themselves, disagree with, and evidence.

That is why the effort in commission design belongs in the definitions rather than in the rate.

The base the percentage applies to determines what the plan actually incentivises.

Revenue is the most common base and the least aligned. Where a seller is paid on revenue, a discount reduces their commission slightly and the employer's margin considerably, so the incentive to hold price is weaker for the person holding it than for the organisation.

Margin-based plans fix that and require the organisation to expose margin data at deal level. Where sellers cannot see or do not trust the margin figure, the plan produces suspicion rather than discipline, so the transparency is a precondition rather than a nicety.

The clause that generates most commission disputes is the one specifying when a sale counts.

The candidates are order signed, order accepted, goods delivered or service commenced, first invoice raised, and payment received. Each is defensible and they can be months apart. A plan that does not say which applies has left the most consequential term to be argued about at the moment it becomes worth arguing about.

Two situations expose it immediately. A seller who leaves between the sale and the crediting event will claim the commission and the employer will resist, and whichever position the plan supports, it needs to support one explicitly. And a deal that closes in the last days of a period may fall either side of it, which matters where quotas or accelerators are involved.

The related question is what happens on reversal. Where a customer cancels, returns goods or never pays, commission already paid may be recovered. Clawback is a reasonable provision and becomes contentious when it appears for the first time at the point of recovery. It should be in the plan, with a stated period after which a sale is final.

A stated finality period is worth including for its own sake. Open-ended clawback exposure means a seller never knows what they have actually earned.

Once more than one person can touch a deal, the plan needs rules that most plans acquire only after a dispute.

• How a deal involving several people is split, and who decides when they disagree.
• What happens when territories or accounts are reallocated part way through a cycle, particularly to deals already in progress.
• Whether inbound leads and marketing-sourced opportunities are treated differently from self-sourced ones.
• How house accounts, existing customers and renewals are handled where nobody sold them originally.
• What happens to a seller's pipeline when they leave, and whether the person inheriting it is credited.

Territory reallocation is the most damaging of these when unspecified. A seller who has spent months on an opportunity and sees the account reassigned before it closes has a strong sense of grievance and will usually be right that the plan did not address it.

Stating a transition rule in advance, such as crediting the original owner for deals at a defined stage at the point of reallocation, resolves it cheaply. Deciding it afterwards resolves it expensively, because whoever loses the argument concludes the plan is arbitrary.

Commission raises questions in payroll that plans frequently ignore until the first exit.

The main one is whether commission forms part of wages for a given statutory purpose. That affects contributions, the base for various calculations, and what is owed on separation. The answer turns on the applicable statutory definition and on the nature of the payment rather than on what the plan calls it, and it is dealt with in the compensation entry.

What is worth settling before a plan launches, rather than at the first difficult exit, is the treatment of commission earned but not yet crediting at the point someone leaves. This is the same question as the crediting event, arriving in a context where the employer has two working days to pay final wages under the payment timelines and the amount may not yet be calculable.

Practical designs address it directly: crediting on a defined event that can be assessed at exit, or a stated post-employment payment for deals that credit later, with a mechanism for paying them when they do.

Recording matters too. Commission calculated in a spreadsheet outside payroll, then entered as a single figure, is difficult to reconstruct when queried, and queries about commission are frequent, specific and usually made by someone who has done the arithmetic themselves.