How To Manage Commission Disputes

Executive Summary

Sales commission disputes plague many large sales organizations. They’re frustrating, waste time and resources across the company, and if not addressed will place a significant drag on long-term growth.

This guide was created to help Sales and RevOps leaders identify the root causes of their commission dispute issues and create a roadmap to fixing them.

Readers must be aware that this guide is not intended to, nor does it constitute, legal advice. Employment and contract laws and regulations vary significantly depending on where you operate, and we advise seeking professional legal counsel before taking any action in order to ensure that it doesn’t place you or your organization at risk.

Why Bother Reducing Commission Disputes?

Operational issues like commission disputes are often ignored because the work created by the issue itself is always more urgent and time consuming than the work involved infixing the root causes.

Some managers may also consider these the “cost of doing business” but these costly issues can and should be avoided.

Salespeople drive growth for any sales-led organization, and are important even in PLG-enterprises.

Incentive Compensation Management is a core process. It impacts numerous other areas of the business, in the short and long-term.

Get it right or be prepared to suffer lagging growth until you do.

1. Disputes erode trust

Ongoing pay disputes are a surefire way to erode the employer-employee relationship. Trust is essential to that relationship, and 90% of that trust revolves around the pay-value exchange.

Repeatedly screwing up their pay will quickly make employees lose faith in your processes, which reduces engagement and productivity, and has a knock-on effect on morale across the organization.

2. Top salespeople will leave

The major consequence of ongoing sales commission disputes is that top salespeople will leave.

Top performers take pride in their ability to earn and will view you as trying to prevent them doing so, even if it happens accidentally.

3. It makes hiring harder

People talk. Salespeople talk more than most. If your company gets a reputation for messing up compensation, even if it’s unintentional, it will make attracting the best salespeople harder.

4. It takes up valuable time

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

If salespeople lose trust in your incentive compensation process, they’ll resort to shadow accounting (if they haven’t already). That’s time they could be generating revenue.

5. It costs more than you think

Sales commission disputes are only the tip of the iceberg. Most people will complain when you underpay them, but won’t tell you if you’ve overpaid.

You should assume that if you’re underpaying a proportion of your reps, you’re probably overpaying a similar-sized portion of them, and just never hearing about it.

6. If it goes to court, you'll lose

In North America, the law and the courts tend to give the benefit of the doubt to employees. That means that unless you’ve got an iron-clad defense, you’ll likely lose.

It doesn’t look good for any company to end up in court disputing an employee’s pay, regardless of whether they’re justified in doing so. It’s bad press and will impact hiring and employee morale. It’s just not worth it.

Why do Sales Commission Disputes Happen?

Poor communication is the root of many of humanity’s problems.

Most disputes about sales compensation happen because of miscommunication in various forms.

Identifying where communication or processes are breaking down in your organization is the first step to reducing sales commission disputes.

1. Poor communication

If sales reps don’t understand how their commission is calculated, they’re more likely to dispute it. Most sales commission disputes aren’t really disputes, they’re just a result of poor communication.

That also refers to communicating plan adjustments, contractual obligations or caveats, one-time splits, SPIFs, etc.

2. Inefficient technology

Ineffective or inadequate technology often puts unnecessary pressure on the human elements of your sales comp process.

If you have six people working out of a spreadsheet and communicating by email, it’s hardly surprising that they produce errors.

ICM software users aren’t much better off. These legacy systems are often a mish-mash of old formulas, forgotten rules, and depreciated features built by an employee several cycles ago. Mistakes happen because nobody is quite sure how it all works anymore.

3. Bad incentive comp plan design

In most of the large enterprises we work with, incentive compensation planning and design are completely removed from day-to-day operations.

That adds an extra layer of translations (which increases the chance of miscommunication) but also means that incentive comp plans aren’t designed as efficiently as they could be within the system, increasing the likelihood of errors and disputes.

4. Unforeseen external influences

Disputes often arise when circumstances that weren’t planned for impact sales: COVID-19, for example. There are currently several sales compensation lawsuits that have arisen because of unprecedented sales in certain products and services resulted in some salespeople earning far more compensation than had been accounted for.

5. Not enough time and resources

When sales compensation is viewed as a cost-center instead of an opportunity center, it is often underfunded and over-burdened. That means the analysts are overworked and stressed, leaving them little time to double-check for mistakes or improve their processes to prevent them.

6. Disengaged employees

Sales compensation analysts are woefully under-utilized. These are highly sophisticated resources that are relegated to performing basic administrative tasks. It’s hardly surprising that sales compensation analysts have a higher turnover rate than sales people.

Disengaged employees make more mistakes, and that causes more commission disputes. And employees often disengage for very good reasons, many of which could be prevented by their employer. If your sales compensation analysts are regularly leaving or burning out, it’s because of your processes and technology, and they don’t have a reason to fight to fix them.
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49% of US workers will start a new job search after experiencing only two problems with their paycheck
Koronos

How to Manage Sales Compensation Disputes

Most sales commission disputes are minor errors or miscommunications that are simply time-consuming to resolve. However, if not managed properly when they do arise, these minor issues can balloon into major fires.

Types of sales commission disputes

Most sales commission inquiries or disputes fall into one of the following categories:

Plan Inquiry

Rep doesn’t understand how commissions were calculated.

Missing Commission

Rep was expecting commission for a deal or pay period that wasn’t received.

Incorrect Commission

Rep was expecting a different commissions amount for a deal or pay period or believes they were calculated incorrectly.

Resolving Sales Commission Disputes

1. Follow procedure carefully

Ensure you follow your contractual and legal requirements throughout the resolution process.

2. Triple check everything

Sales commission disputes occur because of an error, so make sure to check everything in triplicate before committing to a change.

3. Get dispute changes approved

Once the correct action has been identified, ensure that you get it agreed and approved by all the relevant parties, including the employee.

4. Don't take too long

One major complaint people have is the length of time it takes to resolve commission disputes. Anything more than a couple of weeks (or the next pay date) is far too long to resolve a dispute, regardless of the outcome. Delaying a resolution will only erode trust and decrease engagement.

9 Quick Tips for Handling Commission Disputes

1. Remain calm

This isn’t the end of the world. Nobody has died. You can handle this.

2. Don’t take it personally

This isn’t about you. This isn’t a critique of you or your work. This is just something that happens because of poor technology or communication.

3. Hear them out

It’s always best not to assume we already know what the issue is. And nobody likes to be interrupted.

4. Empathize

You would be upset in their situation too.

5. Get all the details

Make sure you record all the details of the dispute now as you’ll need them later.

6. Don’t commit too soon

Do everything you can to placate them but don’t commit to an outcome without looking into the issue first.

7. Explain the process fully

One of the most frustrating things is being left in the dark about what is happening. Explain the process fully and what they should expect.

8. Be realistic about the timeline

As with point #7, it’s important to be clear about how long the dispute resolution process will take.

9. Keep them informed

Even if you know you won’t have an answer ready, set up a time to follow-up and update them about how the resolution process is going.

How to Reduce Sales Commission Disputes

Reducing sales commission disputes is all about clarification and validation.

1. Improve communication

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 you can make the compensation plan easier to understand. Formalize how you discuss it to avoid jargon that further confuses things.

2. Improve your IC plan design

A lot of communication issues arise because the incentive compensation plan design is too complicated to explain easily, or simply hasn’t been formalized in the official plan.

Don’t make verbal agreements around pay. Include it in the contract or don’t include it at all. Make a concerted effort to ensure the compensation plan is clear to everyone and regularly check to ensure everyone is satisfied that they understand how to maximize their compensation within the plan.

3. Improve your technology

The sales comp processes and technology that even leading enterprises rely on is often totally inadequate for the complexity of plan they are trying to implement.

Investing the right sales compensation automation technology can help to reduce errors, especially if it comes with data validation features.

Better technology can also improve visibility, helping sales reps better understand which transactions contribute to their compensation and how the plan fits together as a whole, as well as their progress within it.
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Gallup estimated that disengagement costs a company at least per employee. $2,250
Gallup

Reducing Sales Commission Disputes is a No-Brainer.

Sales commission disputes are a screaming klaxon that you’re leaking cash through inaccuracies elsewhere in the payroll process. And that’s real cash running out the door. Ignore this red flag at your peril.

Working to reduce inefficiencies and error rates, which will minimize sales commission disputes, should be a cornerstone of any serious enterprise growth strategy.

Unsurprisingly, most of these disputes revolve around how money is spent in the organization. These are only exacerbated by poor incentive compensation processes and planning, which cause further inter-departmental friction.

Improving and automating sales compensation processes is an opportunity to plug an operational gap, improve the efficacy of the system (boosting growth) and increase harmony in your organization. It’s a win-win-win. If you’re interested in finding a technological solution to help you reduce sales compensation errors and disputes, reach out to one of our specialists today.