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Chapter 8
Commissions Best

Practices

The application of best practices to commissions hardly seems to be worth a sep-
arate chapter; however, there are a surprisingly large number of actions that can
streamline the calculation of commissions and their payment to sales personnel.
This chapter contains 10 best practices, and the main factor to keep in mind is
that they are designed to improve the operations of the accounting department only.
Though none of them will worsen the systems in the sales department, the other
area that is directly impacted, they may have an opposite impact on the morale of
that department. For example, one best practice is to replace convoluted commis-
sion structures with a simplified model. Though this will obviously lead to easier
commission calculations by the accounting staff, it may also have the negative
impact of reducing the sales incentive for those salespeople who are no longer
receiving such a good compensation package. Accordingly, before installing any of
the following best practices, it is a good idea to first gain the approval of the sales
manager to any changes that will directly or indirectly impact the sales department.

IMPLEMENTATION ISSUES FOR COMMISSIONS BEST PRACTICES

This section illustrates the relative degree of implementation cost and duration for
commission best practices, as displayed in Exhibit 8.1. The level of implementation
difficulty in this area is quite polarized because of one major issue—some of the rec-
ommended changes require the complete cooperation of the sales manager, who will
probably actively resist at least a few of them. Accordingly, the duration of imple-
mentation for these best practices is rated as difficult and long, though they are actu-
ally quite simple if the agreement of the sales manager can somehow be obtained in
advance. An example of this problem is simplifying the commission structure.
Those best practices that can be completed by the accounting staff without
any outside approval are rated as both inexpensive and short installations. An
example of such a best practice is paying commissions through the traditional
payroll system. The only exceptions to the easy internal accounting changes are
two items that may require some expensive programming assistance. Thus, the
range of implementation difficulty is extraordinarily wide in this functional area.

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