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sales commission agreement

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A sales commission agreement may seem like an inconvenience, but not only are they the law in California and New York, they are beneficial to you and your reps in many ways. 

So, even if you don’t employ any reps in those two states, it is in your best interest to invest the time and effort to prepare a proper sales commission agreement. Then, once you have that prepared, you can confirm your sales team’s understanding by having them sign the agreement. 

As a heads-up, this process can be time-consuming. But is totally worthwhile. 

Not only are you complying with the law (if you happen to have team members in states that require it), but you also take a step to ensure your reps understand how and when they earn commissions.

This ultimately creates alignment and transparency across the comp planning process.

When reps understand how they earn commissions, your comp plan does what it’s intended to do — motivate and guide reps.

Otherwise, everyone involved ends up frustrated. Reps grow unhappy with their pay and can’t understand why they aren’t making the income they were expecting. Your team members miss quota, which keeps your organization from hitting revenue targets.  

Need a commission agreement template for a specific role?

When to implement commission agreements

That’s where plan verification comes into play. 

Anytime you introduce a new comp plan or change to an existing one, you should issue a commission agreement.

We call this process plan verification, which occurs when a rep signs a commission agreement that outlines the details of their sales commission plan. 

Typically, this happens at the beginning of the year and when mid-year adjustments are made.

Leaders at larger companies often administer compensation plan verifications via DocuSign, storing agreements in Dropbox, on Google Drive, or in an email folder. This process is similar for smaller companies as well but may take place in person.

Attaining 100 percent comp plan verification can be a slow, frustrating, manually tracked process that takes weeks to complete. 

Fortunately,  it doesn’t have to be that way. With QuotaPath’s Plan Verification, your reps can verify their compensation plans in just a few hassle-free steps directly in QuotaPath.

Commission agreement example

Before you can verify your reps’ understanding of the sales compensation plan, you need to actually create your commission agreement. This template should include the following:

  • Effective dates – The specific start and end dates when the plan will be used to calculate commissions.
  • Intro – This section explains what the document is, its purpose, and what action the recipient needs to take.
  • On-target earnings – A clear explanation of the amount of money the rep can expect to earn if they hit 100% of quota. We see this number most often as an annual figure. This section delineates how much the rep should expect to receive from base salary and from commissions
  • Quota – This section specifies goals the sales rep must attain during a designated period to earn commission
  • Commission table – A listing of commission rates earned on deals depending upon the rep’s progress toward quota.
  • Payment eligibility – An explanation of the timing of qualified commission payments and any other rules pertaining to commission payment, such as the client paying their entire invoice by a specified date.
  • Bonuses – A listing of quarterly, monthly, or annual bonuses along with related targets to hit, the amount to be paid, and when the bonus will be paid.
  • SPIFs – This section addresses the fact that there may be times throughout the year, such as slow periods, when the company wants to drive revenue by running contests, incentives, and/or bonuses (called SPIFs). This part of the sales compensation plan template specifies that SPIFs include short-lived, time-based, one-off compensation drivers.  As such, management will provide and distribute the terms of said programs as they occur.
  • President’s Club – An explanation of what this reward is and how to qualify.
  • Clawbacks — A clawback occurs when a rep must pay commissions back to the company when a customer abruptly ends the contract within a certain period. This section is where you detail rules relating to clawbacks.
  • Legal Disclosure – This section communicates that this is the entire compensation plan, that it supersedes prior agreements, and that verifying by signing signifies acceptance and compliance by the rep.

Commission Agreement Template

To start, download this commission agreement that we created, then tailor it to your specific details.

For more information on QuotaPath and our Plan Verification feature, chat with a team member today. 

And if you’re looking for sales compensation plan templates specific to modeling structures, check out our free Compensation Hub.

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