Question

Since there is no standard industry commission, discuss the factors that go into determining commission rates and payment schedules. Give an example of a commission calculation.

Answer 1

We will consider the example of Sales Commission, let us first understand the type of comission pay

What is Commission Pay - It is a sum of money which is linked with certain sales $ value and given as certain percentage of that value. It is generally paid once the sale is completed and payment have been received. It is ofen used to improve the employee productivity.

Type of Commission Pay

1. Basic salary and Commission: In this case an employee get a fixed basis pay evey period and an additional sales incentive based on the sale value during that period.

2. straight commission: Here an employee earn entire salary as percentage of the sales achieved.

3. Draw against comission: In this case employee have an opportunity to draw a certain percentage of commission as advance which later on get settled with final commission earned.

4. Residual Commission: In this case employee get earning the commission till the time client is buying from company.

Let us take residual commision as an example to explain in details.

E.g. in case of insurance which a client buys every year let us say $1000 is the premium for the insurance which a client has to pay annually. rate of commission on such policy is 1% then in this case employee will earn $10 everytime when the client will pay the premium. This is commission employee will keep getting till the time client has continued the policy and paying the premium on time regularly with being the policy lapsed. This is example of residual commission.