What's the common practice for paying commissions when a sales rep voluntarily quits?

Posted by Tom Snyder on Tue, Dec 12, 2017
Tom Snyder
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What company hasn’t been faced with the challenge of how to handle commissions for a rep who voluntarily takes a new job?

How many times is the answer satisfying to both the company and the rep who is moving on? The truth is, most companies end up with an unhappy result for one or both parties. Getting this right has several important components that may not make everyone ecstatic with the outcome, but are fair to both parties. 

First, it is important to remember one important principle that underpins all reasonable sales compensation plans: the market pays for persuasion. In the case of a departing rep, this means that it is important to determine what revenue has been generated by virtue of their persuasive efforts. 

The second principle then comes into play. How long is the “tail” of that revenue stream? This means determining how much of this revenue will be generated without the intervention of additional persuasive effort. The key here is to accurately separate customer experience efforts from that requiring additional persuasion.

For example: if a departing rep lands an account and the rep taking over expands the revenue stream with either additional sales of the same solution to a different buying center or a different/additional solution to the same audience, there is no need for commissions to the departing rep. 

Lastly, even if the revenue requires no additional persuasive effort, there should always be a time limit on how long commissions are paid to someone departing the company.

The biggest problem is that too few companies lay out these policies at the time that a rep is hired. To write a fair policy, sales leaders must define how salespeople influence their opportunities, how long the revenue "tail" is, and when the cutoff should be for awarding commissions. Setting clear rules will avoid the problems, bad feelings and the need for HR resolution.

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Topics: Team Performance