December 1, 2022

Read Your Comp Plan. Before Resigning. LONG Before.


Randall Bolten and Bob Berry

We depart temporarily from our tour through the Deadly Sins of Incentive Compensation to talk about a more difficult subject: what happens to a sales rep’s commissions if he/she leaves the company. We all hate to deal with this sort of thing, but let’s face it: sometimes a clearly drafted “last will and testament” can save everyone a lot of hassle and heartache.

Take a look at your company’s sales commission plan. When a sales rep leaves the company, who collects commissions on deals where:

  • The commission is “earned” before the termination date, but not paid out prior to the termination date due to normal processing lag times?
  • All of the sales work has been accomplished prior to the termination date – including a signed order and other customer documentation – but the commission is not deemed “earned” until the receivable has been collected, which has not happened as of the termination date?
  • The overwhelming majority of the sales work has been done prior to the termination date, but a successor sales rep carries the deal over the goal line, simply by obtaining the customer’s signature?
  • In any of the above situations, does payment to the terminated sales rep depend on whether the necessary final actions occur within some maximum amount of time after the termination date, like 30, 60, or 90 days?

There isn’t necessarily a clear right or wrong. Obviously, a well-managed company wants everyone to feel that their commission plan is fair, but what’s most important is simply that it’s clear. Regardless of the reasons for termination, and whether voluntary or not, you don’t want sales people feeling like they’ve been taken advantage of. And even worse, you don’t want nonexistent or ambiguous language to end up leading to protracted negotiations or even litigation.

Remember also that not all of the situations that should be addressed involve termination. What happens when the sales rep’s territory changes, or he/she gets promoted or moves laterally out of the sales function? This can be a particularly sensitive issue in SaaS software companies, where the revenue stream has a “very long tail” after the initial sales work is done – in those situations, should the sales rep who initially brought the deal in receive some sort of annuity participation?

If your company’s commission plans don’t address these situations, you’re asking for trouble. As the poet said, good fences make good neighbors.