Sales Commission and Performance Terms of Agreement

A commission is a direct, percentage-based or flat-rate payment tied strictly to a specific sales transaction or volume threshold. A bonus is typically a discretionary or structured reward given for meeting broader performance goals, company milestones, or qualitative achievements over a set period. Commissions are usually contractually guaranteed upon sale, while bonuses may be variable and subjective.

Yes, you can modify commission structures, but you must provide advance written notice and obtain a signed amendment from the employee before the new terms take effect. Retroactively changing commission rates for deals that have already been finalized or earned is illegal and violates employment standards. Clear transition terms must be outlined in the original agreement to handle ongoing sales cycles during a compensation shift.

A draw against commission is an advance payment made to a sales representative, which is later deducted from their earned commissions. If the rep earns more than the draw amount, they receive the remaining balance, whereas earning less means they may owe the difference back to the company depending on whether the draw is structured as recoverable or non-recoverable. Non-recoverable draws act as a guaranteed minimum salary for a set ramp-up period.

The disposition of pending commissions must be explicitly stated in the termination clause of your agreement. Generally, sales reps are entitled to commissions on deals fully closed and paid before their departure date, while pending pipeline deals usually revert to the company without payout. Clear definitions of what constitutes a 'fully closed' deal prevent legal disputes regarding post-employment payouts.