How to Resolve & Reduce Sales Commission Disputes

The root cause of sales commission disputes is often ignored or left unfixed because the work that disputes create is always more urgent than the work involved in fixing them, and takes up significant chunks of time.

Why Sales Commission Disputes Matter

It's well worth spending time and resources to address these issues, as sales commission disputes have several other costly impacts on your business.

1. Disputes erode employee trust.

Failing to pay your staff correctly and promptly will quickly erode employee engagement and trust.

Nearly half of employees say they will start looking for a job after just two pay errors. One error is all it takes to set the relationship on a downhill slope that it is very difficult to come back from.

2. You will struggle to hire and keep top sales talent

Top performers are not happy if they feel like others have held back their potential for earning money — even accidentally, and will act on it faster than most employees.

Related article: 10 Reasons Why Top Salespeople Leave

Failing to address the root cause of unpaid sales commissions (perceived or actual) will result in your top sales talent quitting their jobs.

3. Commission disputes are more expensive than you think

Resolving sales commission disputes takes time from sales, ops, finance, and HR. But there’s another costly way that disputes impact revenue from your organization.

If salespeople lose trust in your incentive compensation process, that means they’ll start shadow accounting. And the sales commission disputes we see are only the tip of the iceberg.

Most people will complain when you underpay them, but many won’t tell you if you’ve overpaid them. You should assume that if you’re underpaying a proportion of your reps, you’re probably also overpaying a portion of them and just never hearing about it.

Commission disputes and errors are a big red flag that something in your sales compensation or payroll process is broken, and that’s an expensive fix.

Why Commission Disputes Happen

Most disputes about sales compensation happen because of miscommunication in various forms. The rest are often inadequate technology or poor processes.

Legal disputes are not that common but typically occur when unscrupulous employers or colleagues act to withhold or claim commissions earnings from an employee.

The cases that most commonly appear in court are about employees are terminated after completing a sale or a breach of contract. If you’re looking for the root cause of sales commission disputes, it’s likely:

• Miscommunication
• Bad technology
• Inefficient processes
• Bad incentive compensation plan design
• Unforeseen events or influences (like COViD)
• Lack of time or resources

How to Resolve a Commission Dispute

Almost all commission disputes can be resolved by referring to the employee’s contract, and the terms agreed to there. The contract will specify who is entitled to commissions and any incentives or other circumstances that would affect an employee’s compensation.

In cases where there is no written agreement between employer and employee about commission payments, any written communication can be used to validate the agreement.

Oral agreements are difficult to enforce, so your commission dispute protocol must be covered in the contract, or it will be very difficult to prove a case either way.

Tips to Reduce Commission Disputes

Reducing sales commission disputes is all about clarification and validation. Here are some ways you can eliminate commission disputes or at least significantly reduce the number of them.

1. Get better at communicating about commissions

The leading cause of sales commission disputes is poor communication or lack of official agreement. Identify where your communication strategy is breaking down and work as a team to figure out how to make the compensation plan easier to understand. Avoid localized jargon where possible, as it will confuse employees who are not clued into what those terms might mean in their context.

2. Redesign your incentive compensation plan

Most communication issues arise because the incentive compensation plan design is too complicated to explain easily, or the commission hasn’t been formalized in the official plan. That doesn’t mean that you should simplify the compensation plan structure, but it might mean adjusting the goals or language to make it easier for sales representatives to understand why they’re getting the commission.

Related article: 14 Top Sales Incentive Plan Design Tips

Put even the smallest details into the employment contract, and don't make verbal agreements around pay; include them in the contract or don’t include them at all. You can also use a separate, shorter commission agreement to supplement the main employment contract.

3. Invest in better technology

Sales compensation automation is the best way to ensure accuracy and efficiency in otherwise overwhelming situations. The right tools can be a lifesaver for reps, analysts, and admins when executing complicated plans with strict requirements, which many top companies rely on but are often ill-equipped to administer.

Sales compensation management software can help organizations avoid errors and increase visibility, especially regarding which transactions contribute to a salesperson's commission and how all the elements of the plan fit together.

There are many incentive compensation software vendors that suit businesses of all sizes. Forma.ai is an enterprise solution that offers unparalleled speed and analysis.

To learn more about our platform and how we can help you automate your incentive compensation processes.