We are hiring a sales rep with a base + commission. He asked, what happens if we fire him, does he still get commision for some time? If not, he said, what happens if he is getting tons in commision and we decide it is cheaper for us to fire him then to continue paying commissions. I said that I will find out what the accepted standard is.
Thank you
It’s certainly something you can negotiate up front, depending also on local employment laws. That question would concern me though.
he said, what happens if he is getting tons in commision
That's a positive question. If he was asking what holidays are off and how weeks of vacation, that would be more concerning. He's asking a question presuming he is doing great.
Salespeople getting fired and being owed commissions is a common thing / concern. Maybe it's happened to him, it's certainly happened to his friends.
we decide it is cheaper for us to fire him then to continue paying commissions
Companies doing that are bad companies. It's a short-term gain tactic but foolish long term. Indeed, the more common variant is simply raising the quota for the next year to effectively reduce commissions / payment.
That said, you do need to have some language. Likewise, you need to protect yourself if the salesperson quits. For example, let's say the salesperson quits and argues he should be paid for business that is going to close next month or for business that is closed but has not yet been executed / paid.
I have been on both sides of this negotiation.
The question as written, without any background color, brings into question the honesty/integrity of the employer.
It could also be a strategy to impress the employer, similar to the old yellow pages sales method I experienced. “I don’t think your business could support an ad this big, it brings in more business than it appears you could handle”.
As my father said, when you hire someone who has had two bad bosses in a row, prepare to be number three.
Excellent quote from your father!
For sure going to steal that.
Typically sales people will get a post-departure commission check for any deals that close within 30 days after their last day. Sometimes there are special considerations, such as a deal that is in-process of closing, but you both know is going to take an abnormally long time to close.
Of course, the flip side of this is that the sales person is likely going to "ride the pipeline" for their first few months, closing deals that they had minimal influence on, so in some ways they are getting paid up front in a manner. I have been known to ask sales people that get too hung up on weird commission nuances around departures if they are willing to forego commissions on any existing pipeline deals ;) (note: savvy sales people can answer this question in a way that proves their value add. Less savvy sales people will be a bit deer in the headlights, or indignant, when you suggest they don't get paid for deals they didn't originate and control).
If not, he said, what happens if he is getting tons in commision and we decide it is cheaper for us to fire him then to continue paying commissions.
I understand his concerns, but this is a slightly odd question. It implies he is going to be selling RMR-related services. Typically for deals that have ongoing revenue, some account TLV is calculated by the business, and a 1-time commission is paid based on that, often after a minimal time period to make sure the account "sticks" (typically 2-6 billing cycles, but it can vary a lot). Therefore it is never cheaper for you to fire him, as he is only getting paid for new accounts, which are mutually beneficial to you both.
If he is expecting monthly commissions for all active RMR accounts, the amount per month is going to be pretty small, probably $1.00/account or less. It would take a while before you really had to test the results of such a scenario.
Additionally, most businesses do not set out to limit their growth. If someone can deliver such results that you would consider firing him for the cost-savings, wouldn't it make more sense to KEEP a person like that on the expectation that they continue to deliver new accounts? Maybe even promoting them to run a region or division to help further accelerate growth.
"He asked, what happens if we fire him, does he still get commision for some time?"
i don't find this question to be at all positive.... it's like the corporate version of a pre-nup. As if the potential spouse employee is limiting potential losses ahead of time - in recognition that the relationship will sour at some point based on their own imminent and foreseen (in their own minds) deeds.
"what happens if he is getting tons in commision and we decide it is cheaper for us to fire him then to continue paying commissions"
if the sales person is only getting commission off of jobs they bring in, then how could it be cheaper for them to fire this person - unless there is a finite number of customers that can/has been exhausted?
the logic of these two questions makes no sense to me. so I would not hire this person.
The questions that were asked are subjective and perhaps that is why they do not make sense to you. Alan Turing would swat you with this ruler for logical wisdom without the abstract!!
If your company has strong sales method and procedure leadership, engineering and technical support; your team should be able to support any stray that wanders into your sales network. Again the questions asked, how were the actual words spoken and delivered? The potential employee was....cordial, smart, witty, obsessive, liberal, passionate, illusive, soap box comedian, concerned etc. The forum was not in the room to experience and judge the character, persona of this person so we only have one perspective.
Last, the questions are subjective and really say, "How does your company provide closure on out standing commissions, salary and bonuses that have not yet finalized". The other side of the coin is, I hear you buy sales reps with huge networks then steal their customers. Yah, Yah, you send your engineers, best technicians, outperform the last company the last company I worked for triple fold. Then my customer will think this new company is great and I still got my good buddy sales rep(me). Time goes on, you have taken all that hard earned commission(time I put it), kick that sales rep(me) to the curb and go buy the next one! Wine you, dine you then….
Alan Turing would swat you with this ruler
I don’t think so, Turing abhorred violence.
Make a policy that is fair and stick with it each year. Changing commission plans yearly is perfectly acceptable however if you do not need to I would keep them consistent. A fair policy could state an employee in good standing is eligible for the following commission program (then detail the plan). Being at or above quota can be a qualification for good standing. Being employed by the company can be a qualification of good standing.
Side note:
An interview is such a small glimpse into the character and work ethic of a potential new employee and I have heard part of that question a few times while interviewing. My response was why do you think you will get fired? It is always interesting to listen to the answer.
If the interviewee thinks you will fire them after they ring up a ton of sales you have a trust issue. Trust issues are culture killers. I would address that right away.
Good luck.
Did Shelley Levine get a Cadillac car?
Some states have salespersons protection laws, as well. I recall a case in Connecticut years ago where triple damages were awarded to a salesperson who was fired by his firm to avoid paying out a very big commission.
As regards methodology, I have been involved in many (bar) discussions about what's fair compensation practices for commissioned sales people. Yes, a salesperson may get commission for a project that they had little involvement in, but very often loses a big one they had heavily invested in.
Stepping back from the specific issues brought up, it is highly recommended that any potential sale hire be vetted before offering them a position. We have used services such as Rembrandt Portraits (no endorsement here...there are many good sources for this kind of service), which revealed much about a person's integrity, energy levels, etc. If you hire the right person, the specifics and minutiae become less critical, as success in sales will encourage you to keep that person happy.
Traditionally sales reps are paid commisions earned through there last day of employement. If she or he is performing you would not fire them.
Its kind of an odd question and would raise a red flag for me as an employer. Not sure why it does, maybe Im getting a sense of unprofessionalism or entitlement. I would probably move on past this guy.
As some alluded to, if you are a respectable company and the guy has brought in alot of money and he has done nothing wrong, why would you fire him? Because it is cheaper? I dont think so. If he brought in alot of money that you didnt already have, chances are he can bring on more. If you do fire him for this reason because it is cheaper, then you probably wont last long because you make bad business decisions so he is probably better off without you.
If he brings in alot of clients and money, and breaks a serious rule. He is gone without pay.
What you are asking seeks legal advice, you are best to consult with your corporate counsel.
This reminds me of a famous case where S & H Insurance Co. hired someone to go out west and turn around a flailing insurance company promising a 20% bonus of all profits. Mr. McCullough exceeded everyone's expectations and ended up making more money than the chairman of the board of the parent company. The company fired him because he refused to reduce his commisison rate. That case was the birth or wrongful termination in California. Mr. MuCullough was awarded $4 million in compensatory and $8 million in punitive damages. I remember the day the verdict came out, the defendant insurance company was placed into receivership by the California Insurance Commissioner because the award would make the company insolvent.
https://www.leagle.com/decision/198559352br5411458
I don't think all the judgement on this particular salesperson is what was asked. The question was what is industry standard "policy" on commissions. Morals and ethics on both sides of the employer/employee relationship are all over the map so the questions the employee asked do make sense and it makes sense to ask about the policy and nobody stays in a job forever. My policy is invoices collected in next 90 days after termination that salesman sold gets paid unless termination is for cause. I also include chargebacks/refunds in commissions calculations.
Many of the comments seems to be based upon the assumption that the sales rep already has experience with commission plans. But if we look at it from a person that has never dealt with a commission plan before this would be a reasonable question. On the other side, if the sales rep has had other commission based plans and the business didn't honor their side of the deal then I can see where this would be something to ask a potential employer.
If a company is going to have a commission plan then they should already have this figured out and documented. This not only protects the company but tells the sales rep what the policies are so they can make an informed decision on if they can live with the offer.
How long commissions should be paid, after separation, really depends on the type of product/jobs being sold and if commissions are being paid before or after the company receives payment from the client. If it's after the company is being paid from the client, than I feel that all jobs/product sold prior to termination should have a 60-90 day time frame to still collect commissions. It took approximately 60-90 days for you to start getting commissions so why should that change it if you are no longer working with the company. Some may disagree, but it shouldn't if you are terminated or leave voluntarily, you sold the product/service, the company has to deliver the product/service, collect payment, and process the commissions. Setting a 60-90 day time frame for this not unreasonable.
...what happens if he is getting tons in commision and we decide it is cheaper for us to fire him then to continue paying commissions.
Well, if you actually were to do that, e.g. he works on a deal for 6 months and you can him the day before the deal is signed to save money, I think you could be sued for breach.
Assuming you wouldn’t do that, just for ethical reasons alone, then assuming your firing him for job performance, how much commission could he really be due?
So why not just tell him you’ll pay him for any deals he originated in the next sales cycle, whatever time period that is.
I do think there are 2 potential reasons to fire an integrator salesperson in this condition:
(1) Some (most?) commissions are not paid until payment is received.
(2) Company may believe they can retain the account the salesperson won, even without the salesperson and save the ongoing commissions that would have been paid for future sales to that customer.
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