My employer thinks I made TOO much last year therefore he has a new pay package for me which caps my sales commission!

Question

My employer thinks I made TOO much last year therefore he has a new pay package for me which caps my sales commission! I am paid a percentage of the profits from my sales…..how can I make too much?

Answer

Unfortunately, we don’t have a quick easy answer to make all employers rational sales comp designers. We have to just help the clients who want help, one at a time. That said, here are two principles that may be relevant:

  1. No caps. We rarely recommend a sales comp plan be capped – no need to take your top performers’ motivation out. But we do recommend deceleration at high levels of attainment, per-deal caps, caps on the % of margin on a deal that may be paid to the rep, etc. – these keep pay rational even in case of windfalls and large deals that were sold with “help” from company leadership.
  2. Over time, sales people generally should earn more money each year – with pay going up as the labor market rates go up (a few percentage points per year). In a well-run company, sales productivity should go up much faster than the labor market rates for the sales people due to the investments the company makes in broadening the product line, building the brand, selling tools and systems, etc. As a result, compensation plans that are communicated as commission (% of revenue or margin sold) generally have to be adjusted so that the payout rates decrease. That’s the only way the math works.

So… you are right that caps aren’t a great idea. But your employer may also be right that there should not be a linear relationship between your compensation and your productivity over the long run.