A great sales commission plan is only as effective as the clarity of the rules that govern it. That’s where your Sales Commission Policy comes in. Think of it as the instruction manual that accompanies your commission model – defining who gets paid what, when, how, and under what conditions. It ensures consistency, avoids disputes, and builds trust with your sales team.
Why Every Business Needs a Commission Policy
Without a formal policy, things can get messy fast. Sales professionals may interpret rules differently, misunderstand how much commission on top they’re owed, or dispute the timing of commission payments. A policy removes ambiguity and gives everyone the same understanding of how the commission scheme works. It also protects the business—especially as you scale—by providing a clear reference when handling edge cases like leavers, clawbacks, or disputes.
It’s not just about compliance–it’s about clarity, consistency, and performance.
1. Introduction & Purpose
Start with a simple statement of intent. Why does your company use a commission plan? What’s the goal of this document? Typically, this section reinforces that the policy exists to ensure fairness, transparency, and alignment with overall business and sales goals.
2. Summary of Sales Commission Structures and Rates
Provide a brief overview of the sales commission structures in use:
- Base salary and commission rates
- Types of commission models (e.g. straight commission, salary plus commission plan, draw against commission)
- Different commission percentages for different products or services
You don’t need to include exact numbers here – these will likely live in a separate comp plan or spreadsheet. But the structure should be clear enough for a new sales rep to understand.
3. Commission Eligibility and Attainment Criteria
This is one of the most critical sections. You need to define:
- What counts as a "sale"
- When a sale is considered "attained"
There are a few common triggers:
- Contract signature or purchase order (PO) received
- Invoice issued
- Payment received
Each comes with trade-offs:
- Payment-based models reduce risk but delay reward
- Invoice-based aligns better with most finance processes
- Signature-based keeps momentum high but carries risk
The right commission structure depends on your risk tolerance, sales cycle length, and industry norms. For example, in auto sales or short sales cycles, faster recognition might work. In enterprise deals, payment-based triggers may be safer.
Also, be clear whether sales are measured by total sales revenue or by gross margin commission structure—this choice affects incentives.
4. Timing of Commission Payments
Detail when commission will actually be paid:
- Monthly, quarterly, or per sale
- Timing after invoice or payment
- Cut-offs for payment cycles
If you offer a draw against commission, explain how it works – e.g. whether it’s recoverable, how it's offset, and over what timeframe. This can be useful when onboarding salespeople with longer ramp periods or low base salaries.
Outline whether commission payments are subject to clawbacks – for example, if a deal is refunded or cancelled.
5. Leavers, Promotions & Role Changes
What happens when a sales agent resigns or is promoted?
- Are unpaid commissions forfeited or prorated?
- What happens if they switch to a non-sales role?
- How are quotas recalculated during transitions?
Be transparent – sales reps are more likely to stay loyal when policies are seen as fair.
6. Handling Commission Caps, Big Deals, and Tiered Structures
Most research shows that capping commission is counterproductive. It kills motivation – especially for top sales talent. Instead of hard caps, consider smart design features:
- Tapered rates for unusually large deals
- Tiered commission plans that reward sustained performance
- Senior review for deals over a certain threshold
You may want to combine this with territory volume commission or revenue commission logic to avoid skewing incentive balance.
Example:
- Standard rate: 10%
- 101–125% of target: 15%
- Over 125%: 20%
This gives reps the chance to earn substantial commissions—and aligns with company growth.
7. Gross Margin, Residual, and Other Commission Models
Not all businesses are best served by flat revenue-based commissions. Some alternatives include:
- Gross margin commission: Prioritises profitability
- Residual commission model: Great for subscriptions or long-term deals
- Territory volume commission structure: Rewards team success within a region
Outline what model(s) apply, and when. Hybrid approaches—like combining revenue commission with a residual commission structure—are increasingly popular in SaaS and recurring revenue businesses.
8. Disputes, Exceptions, and Amendments
No matter how well-written your policy is, edge cases happen:
- Disputed ownership of a lead
- Unexpected contract terms
- Market changes mid-period
Set up a clear dispute resolution process:
- Who reviews exceptions?
- What’s the turnaround time?
- How will outcomes be communicated?
This section should also clarify how and when the policy may be amended—and how reps will be notified of changes.
Final Thoughts on Sales Commission Plans
A great sales commission policy doesn’t just handle logistics—it builds trust, drives consistency, and keeps the team focused on what matters.
When built on top of an effective commission structure, a well-communicated policy gives your sales team members the confidence to pursue bold sales goals and contribute to long-term business growth.
Missed our earlier posts?
- Part 1- Sales Commission Plan- Have Clear Objectives
- Part 2- Sales Commission Plan- Designing Your Commission Plan
That’s the full story—from strategy to structure to policy. All that’s left is execution.
