Vesting of Commissions
One particularly difficult sticking point with commission agreements is failing to define what is supposed to happen if a sale is canceled or the terms need to be renegotiated.
One solution that eliminates many problems is to state that a draw or advance becomes a vested commission only after all conditions on vesting have been removed (e.g., vested only after customer’s time to cancel has expired, and/or terms have been accepted by customer with no right of renegotiation).
Do not have some vague statement about your ability to take back, says Kato; that most likely will not hold up.
From a legal standpoint, courts and agencies will not allow the employer to “shift the risk of the enterprise onto the employee.” Employers need to balance clear and fair conditions for vesting. Avoid using a provision that makes the employee the guarantor of the sale.
Changing the Vesting Event
Another common source of disputes is where the employer tries to modify an employee’s contract, due perhaps to a miscalculation in forecasting or a large windfall sale that results in huge commissions.
Such attempts to change the deal are OK only if:
- It does not result in forfeiture of already earned commissions.
- It doesn’t breach the covenant of good faith and fair dealing.
Low increase budget? Wondering what to say? Start on Wednesday, April 16, 2014 with an interactive webcast Salary Communication: How to Empower Managers to Be Smarter, More Confident Compensation Communicators. Learn More.
‘Windfall’ transaction defined
A windfall provision allows an employer to reduce the commission to prevent unfair windfall commissions. If the agreement is ambiguous or unclear about the employer’s right to change the agreement, the court will not allow the change.
Courts will generally side with the employee where the employee is the procuring cause or effective cause of the sale and where there is substantial compliance with the terms.
Some refer to this as “shaking the tree.” That is, if a sales employee has shaken the tree, that salesperson is entitled to the fruit that falls to the ground. The test is one of the tests of fairness.
Windfall provisions are more likely to be enforced following a windfall transaction where:
- The employee was involved in forecasting the sales quota.
- The employee was not the procuring cause of the sale or expended little effort in making the sale.
- The covenant of good faith and fair dealing was not violated.
This is an implied covenant, but the court may require the employer to follow the principles of good faith and fair dealing.
Communicating about compensation—always some level of hassle. Fortunately there’s timely help in the form of BLR’s new webcast— Salary Communication: How to Empower Managers to Be Smarter, More Confident Compensation Communicators. Find out more
You can do all the discouraging and rule-making you want, but people are going to talk about salaries.
In fact, a recent study found that 68 percent of employees believe their employers share too little information about compensation. As a result, they seek out that information from alternative sources, such as recruiters, salary benchmarking websites, and coworkers. Those sources result in a negative perception on employee pay.
If managers are better trained to address compensation proactively, they can improve employee retention.
Join us on April 16 when our presenter, a seasoned compensation consultant, will discuss the tools and techniques you can give your managers to enable them to more effectively communicate about compensation with their employees.
In just 90 minutes, you’ll learn how to empower your managers to be smarter, more confident compensation communicators.
Register today risk-free for this interactive webinar.
Salaries low? Employees don’t understand? Join us for an interactive webcast on Wednesday, April 16, 2014, Salary Communication: How to Empower Managers to Be Smarter, More Confident Compensation Communicators. Earn 1.5 hours in HRCI Recertification Credit. Register Now
By participating in this interactive webcast, you’ll learn:
- The materials and information you can use to educate your managers about compensation practices.
- How to handle talking about different kinds of compensation, from base pay to bonuses and beyond.
- Ways to explain how pay rates, packages, and market rates are determined.
- Role-playing techniques to help build managers’ confidence when asked tough compensation questions.
- How to determine which pay topics to be transparent about, and which to leave out.
- And much more!
Register now for this event risk-free.
Wednesday, April 16, 2014
1:30 p.m. to 3:00 p.m. (Eastern)
12:30 p.m. to 2:00 p.m. (Central)
11:30 p.m. to 1:00 p.m. (Mountain)
10:30 a.m. to 12:00 p.m. (Pacific)
Approved for Recertification Credit
This program has been approved for 1.5 recertification credit hours toward recertification through the Human Resource Certification Institute (HRCI).
Join us on Wednesday, April 16, 2014—you’ll get the in-depth Salary Communication: How to Empower Managers to Be Smarter, More Confident Compensation Communicators webcast AND you’ll get all of your particular questions answered by our experts.
Train Your Entire Staff
As with all BLR/HRhero webcasts:
- Train all the staff you can fit around a conference phone.
- You can get your (and their) specific phoned-in or emailed questions answered in Q&A sessions that follow each segment of the presentation.
It’s probably wise to consult an attorney before changing terms–this is the kind of thing that provokes litigious employees.