Commission pay is performance-based compensation. Want to motivate your sales team to close more deals? Commission pay might be your answer.
Here’s how it works: you pay people based on what they sell. Maybe it’s a cut of each deal, maybe it’s a flat fee per transaction. This model shows up all over—sales, real estate, recruiting, financial services. The kinds of jobs where what you close is what you earn.
You can make it their whole paycheck, or layer it on top of a base salary. Both approaches work. It depends on your team and your industry.
The upside? When people see a direct line between effort and reward—when every sale moves the needle on their paycheck—they tend to lean in, to hustle a little harder. It can be powerful.
But not everyone thrives in this environment. Some people get motivated. Others? They shut down. Too much pressure. Not enough stability.
Which is why copying someone else’s commission structure almost never works. It’s not plug-and-play. You have to build it for your team, your goals, and the way your people tick.
Because at the end of the day, the best plan is the one that pushes your team forward—without burning them out along the way.
Want to pay for performance? Here’s how commission works
In general, an employee’s commission pay is a percentage of their sales, deals closed, or revenue generated. There is no universal commission percentage; it varies by industry and depends on the company’s commission structure.
Common structures include:
- Straight commission. In this setup, an employee earns all of their income from commissions, with no fixed salary or base pay. Their earnings are a percentage of the sales or business they generated.
- Base plus commission. An employee receives a fixed base salary and any additional earnings for sales or performance achievements.
- Tiered commission. Instead of a single, flat commission rate, commission rates increase progressively as an employee attains higher performance thresholds or sales milestones within a specific period.
- Draw against commission. An employee receives advance payments based on expected future commissions. This pay structure provides them with income during periods of fluctuating or low sales or in industries with exceptionally long sales cycles.
Depending on the company’s compensation policies, commissions may be paid monthly, quarterly, or upon deal closure.
Why commission pay might be perfect for your team
Commission pay works best when you can clearly measure what someone achieves—and tie that directly to revenue. That’s why you’ll find it everywhere in sales and business development. Real estate agents, financial advisors, and recruiters? They’re all working on commission because their success directly impacts the bottom line.
Why do employers love commission structures? Because they align your team’s goals with your business goals. When your people succeed, you succeed. And the research backs this up—CaptivateIQ’s recent survey found that 57% of commission-based employees say working for commissions actually motivates them to do better work.
But here’s where it gets tricky: commission plans only work when your team trusts the system. That same survey revealed something important—employee motivation tanks if people think you’re miscalculating their pay, paying them late, or ignoring their questions about commissions. Trust breaks down, motivation disappears.
There’s another wrinkle worth knowing about: commission pay doesn’t motivate everyone equally across different cultures. Research shows that employees in Western cultures tend to respond more strongly to monetary rewards like commissions than employees from other cultural backgrounds. For example, individuals in China, India, Mexico, and South Africa were less motivated by money and more motivated by psychological factors, such as “social norms, praise, self-actualization, desire to reciprocate and fear of social rejection,” than those in the United Kingdom and the United States.
Something to keep in mind if you’re building a global team.
The takeaway? Commission pay can be incredibly effective—but only when it’s designed thoughtfully and executed reliably.
What to think about before you roll out commission pay
Craft clear commission plans
You’ll want to clearly detail comprehensive commission plans and include them in both offer letters and employment contracts.
Why? They solidify expectations and prevent any future disputes over compensation calculations and payment terms.
Commission plans should include:
- When employers pay out commissions
- How employers calculate commission payments
- The performance triggers that generate commission payouts
- Any clawback clauses where the employee has to pay back commissions if a client cancels a contract, a customer returns a product, or other circumstances along those lines.
Skip the paperwork, and you’re asking for trouble. Your team won’t know when they’re getting paid or how much they’re earning—which kills the motivation you were trying to create in the first place.
Manage global complexity
Commission payments are more complex for international employees than for in-country employees, as local labor laws regulate how and when commissions are earned and paid. In many countries, commissions must be included in calculations for severance payments, holiday pay, and other employee benefits. Therefore, employers have to keep up with the varying compliance requirements of each employee’s residence.
Important note: Misclassifying employees as independent contractors to circumvent commission-related obligations and compliance requirements can expose organizations to substantial legal risk, including penalties and sanctions.
Balance commission-related risks
Commission pay can help you hit your goals—but you can’t just roll it out everywhere and hope for the best. You need to plan it carefully and test what actually works for your team.
According to research on commissions published in IZA World of Labor, when “pay incentives are ill-designed, the effects can be perverse and counterproductive,” even leading to excessive physical and psychological stress.
Let Pebl handle the complexity
Managing commission pay across different countries? We’ve got you covered.
The complexity is why we get so specific. Your contracts don’t just tick the boxes—they lay everything out. Commission structure, timing, calculations. It’s clear and documented, avoiding the “wait, what?” moments.
With payroll, it doesn’t matter if it’s salary or commission. We process everything country by country, according to each place’s tax and labor laws. Brazil? Germany? Vietnam? People get paid right and they get paid on time. Every time.
And that whole employee vs. contractor thing? If you get that wrong, you’re not just looking at fines; you’re looking at legal messes that stretch across borders. We help you classify people correctly, so your commission plan doesn’t blow up later.
Because here’s the truth: what works in one country might totally flop in another. Culturally and legally, every place is different. Pebl helps you navigate that with our Employer of Record (EOR) service. We help you make commission plans that actually motivate people, not confuse them.
And if global commission pay sounds complicated, that’s because it is. But we’re built to handle the complex stuff—so you don’t have to. Reach out today.
This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.
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