Commission (remuneration)
Encyclopedia
The payment of commission as remuneration
for services rendered or products sold is a common way to reward sales people
. Payments often will be calculated on the basis of a percentage
of the goods sold. This is a way for firms to solve the principal–agent problem, by attempting to realign employees' interests with those of the firm.
Although many types of commission schedules exist, a common form is known as On Target Earnings
, where commission rates are based on the achievement of specific targets that have been agreed upon between management and the salesperson. Commissions are intended to create a strong incentive for employees to invest maximum effort into their work.
Note that often a firm embracing a commission structure may not involve employees, but may solely establish themselves using independent contractors. An example of this could be a real estate agent.
Offering compensation in the form of commission alone is known as straight commission. Compensation may also take the form of commission plus a fixed salary. Industries where commission is commonly paid include car sales
, property sales
, insurance broking
and many other sales
jobs.
A side effect of commissions is that in some cases, they can result to salespeople resorting to dishonest and fraudulent business practices in order to increase their sales.
Remuneration
Remuneration is the total compensation that an employee receives in exchange for the service they perform for their employer. Typically, this consists of monetary rewards, also referred to as wage or salary...
for services rendered or products sold is a common way to reward sales people
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
. Payments often will be calculated on the basis of a percentage
Percentage
In mathematics, a percentage is a way of expressing a number as a fraction of 100 . It is often denoted using the percent sign, “%”, or the abbreviation “pct”. For example, 45% is equal to 45/100, or 0.45.Percentages are used to express how large/small one quantity is, relative to another quantity...
of the goods sold. This is a way for firms to solve the principal–agent problem, by attempting to realign employees' interests with those of the firm.
Although many types of commission schedules exist, a common form is known as On Target Earnings
On Target Earnings
"On-track" or "on-target" earnings is a term often seen in job advertisements, especially for sales personnel. The typical pay structure may be composed of a basic salary with an additional amount of commission...
, where commission rates are based on the achievement of specific targets that have been agreed upon between management and the salesperson. Commissions are intended to create a strong incentive for employees to invest maximum effort into their work.
Note that often a firm embracing a commission structure may not involve employees, but may solely establish themselves using independent contractors. An example of this could be a real estate agent.
Offering compensation in the form of commission alone is known as straight commission. Compensation may also take the form of commission plus a fixed salary. Industries where commission is commonly paid include car sales
Car dealership
A car dealership or vehicle local distribution is a business that sells new or used cars at the retail level, based on a dealership contract with an automaker or its sales subsidiary. It employs automobile salespeople to do the selling...
, property sales
Real estate broker
A real estate broker, real estate agent or realtor is a party who acts as an intermediary between sellers and buyers of real estate/real property and attempts to find sellers who wish to sell and buyers who wish to buy...
, insurance broking
Insurance broker
An insurance broker finds sources for contracts of insurance on behalf of their customers. The three largest insurance brokers in the world, by revenue, are Aon, Marsh & McLennan, and Willis Group Holdings.-Purpose of insurance brokers:...
and many other sales
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
jobs.
A side effect of commissions is that in some cases, they can result to salespeople resorting to dishonest and fraudulent business practices in order to increase their sales.