Sales Commission Policy
What is a sales commission policy?
A sales commission policy is the standing, company-wide document that governs how commission works — the rules that apply to every plan, rather than the numbers that apply to one rep. It is the constitution; the individual comp plan is the legislation.
Most companies have plans and no policy. The result is that the questions a plan does not answer — what happens when a rep leaves before payout, how a disputed deal is adjudicated, whether commission is earned at close or at collection — get answered ad hoc, differently each time, by whoever is in the room.
Policy vs plan vs agreement
What this means?
The plan says a rep earns 10% of ACV. The policy says when that commission is earned, what happens if the customer never pays, who decides if two reps both claim the deal, and whether the rep still gets paid if they resign in the interim. Those are not plan questions. They recur across every plan, and they are exactly the questions that produce disputes.
What a commission policy must answer
Six provisions do most of the work. A policy missing any of them will be tested on it.
The clause that decides everything: the earning event
"Commission is earned when the deal is closed-won" and "commission is earned when the customer pays" are two different businesses.
The first is a bookings-based policy: reps are paid fast, cash goes out before it comes in, and clawbacks do the cleanup when a customer churns. The second is collections-based: cash-safe, and reps wait — sometimes months — for money they consider already earned.
Neither is right. What is not defensible is leaving it unstated, because then a rep believes they earned it at close and finance believes they earn it at collection, and both are reading the same document.
Why a commission policy matters for finance teams
The policy is where commission stops being a sales artifact and becomes an accounting one. The earning event determines when commission expense is recognised, which determines your accrual. The clawback terms determine what happens to that expense on a reversal. The termination clause determines whether an unpaid commission is a liability on your balance sheet.
None of that is answerable from a rep's comp plan. All of it should be answerable from one document, in under a minute.
Common mistakes with commission policy
1. Not having one
The most common state. Plans exist, policy does not, and every recurring question is answered fresh — inconsistently, and in the company's favour just often enough to be noticed.
2. Leaving the earning event implicit
If the policy does not name the earning event, the rep's assumption and finance's assumption will differ, and the rep's is the one with a wage claim attached.
3. Burying the termination clause
It is the clause most likely to be litigated, most likely to be state-law dependent, and most likely to be a single sentence in an appendix.
How Visdum handles commission policy
A policy is only real if the system enforces it. Visdum encodes the earning event — bookings, invoice, or collections — as the trigger the calculation engine actually uses, so commission is recognised when the policy says it is rather than when a spreadsheet formula happens to fire. Clawback triggers, dispute workflows, split rules, and approval chains are configured once and applied consistently to every plan, with an audit trail showing which rule ran on which deal. That closes the gap between the policy document and what actually happened, which is where most companies discover their policy was aspirational.
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Related terms
Plan Sign-off · Clawback · Commission Dispute · Bookings vs Collections · Commission Split
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Frequently asked questions
What is a sales commission policy?
The standing, company-wide document that governs how commission works across every plan — as distinct from an individual comp plan, which sets one rep's quota and rates. The policy answers the recurring questions: when commission is earned, what happens on termination, how clawbacks work, how disputes are adjudicated, and who owns a contested deal.
What is the difference between a commission policy and a comp plan?
The policy is the framework; the plan is the numbers. The plan says a rep earns 10% of ACV. The policy says when that commission is earned, what happens if the customer never pays, who decides when two reps claim the same deal, and whether a rep who resigns still gets paid. Those questions recur across every plan.
What should a sales commission policy include?
Six provisions carry most of the weight: the earning event (booking, invoice, or collection), termination treatment, clawback terms, the dispute procedure, crediting and split rules, and the company's rights around plan changes and discretionary adjustment. A policy missing any of them will eventually be tested on the one it omits.
When is sales commission considered earned?
It depends entirely on what your policy says — and this is the single most consequential clause in it. A bookings-based policy earns commission at closed-won; a collections-based policy earns it when the customer pays. Leaving it unstated is the problem: the rep will assume the first and finance will assume the second, both reading the same document.
Does a rep get paid commission after they leave?
It depends on the termination clause and, critically, on state law — in many US states earned commission is protected wages regardless of what the policy says. This is the most litigated clause in sales compensation and, in most companies, a single sentence buried in an appendix. It deserves better placement than that.
Why does the commission policy matter for accounting?
Because it determines when commission expense is recognised. The earning event drives the accrual. The clawback terms determine what happens to that expense on a reversal. The termination clause determines whether unpaid commission is a balance-sheet liability. None of that is answerable from an individual rep's comp plan.