Page 170 - Accounting Best Practices

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8–6 Include Commission Payments in Payroll Payments
8–5 SIMPLIFY THE COMMISSION STRUCTURE 159
The bane of the accounting department is an overly complex commission struc-
ture. When there are a multitude of commission rates, shared rates, special
bonuses, and retroactive booster clauses, the commission calculation chore is
mind-numbing and highly subject to error, which causes further analysis to fix.
An example of such a system, based on an actual corporation, is for a company-
wide standard commission rate, but with special increased commission rates
for certain counties considered especially difficult regions in which to sell,
except for sales to certain customers, which are the responsibility of the in-
house sales staff, who receive a different commission rate. In addition, the
commission rate is retroactively increased if later quarterly sales targets are
met, and are retroactively increased a second time if the full-year sales goal is
reached, with an extra bonus payment if the full-year goal is exceeded by a set
percentage. Needless to say, this company went through an endless cycle of
commission payment adjustments, some of which were disputed for months
afterwards. Also, this company had great difficulty retaining a commissions
clerk in the accounting department.
The best practice that resolves this problem is a simplification of the overall
commission structure. For example, the previous example can be reduced to a
single across-the-board commission rate, with quarterly and annual bonuses if
milestone targets are reached. Though an obvious solution and one that can
greatly reduce the work of the accounting staff, it is only implemented with the
greatest difficulty because the sales manager must approve the new system, and
rarely does so. The reason is that the sales manager probably created the convo-
luted commissions system in the first place and feels that it is a good one for
motivating the sales staff. In this situation, the matter may have to go to a higher
authority for approval, though this irritates the sales manager. A better and more
politically correct variation is to persuade the sales manager to adopt a midway
solution that leaves both parties partially satisfied and still able to work with each
other on additional projects. In the long run, as new people move into the sales
manager position, there may still be opportunities to more completely simplify
the commission structure.

Cost: Installation time:

8–6 INCLUDE COMMISSION PAYMENTS IN
PAYROLL PAYMENTS

If a company has a significant number of sales personnel, the chore of issuing
commission payments to them can be a significant one. The taxes must be com-
piled for each check and deducted from the gross pay, the checks must be cut or a
wire transfer made, and, for those employees who are out of town, there may be