High Tech Commission Games

[hightechsales]

My company business model with large customers is typically mult-year (3 year) software lease agreements, whereby during the term of the agreement a payment schedule of quarterly or annual revenue payments is made to the company. The company sales commission plan basically follows the customer payment schedule.

After the initial booking commission, the remaining backlog (residual) commissions are paid out over the term of the agreement as the revenue payments to the company are made. As the payments are made, revenue is recognized and commissions are paid.

However the company has a practice of transfering sales personel off the account after the initial agreement negotiation, effectively terminating the residual commission payments.

Q1: Is this legal and what options do I have ?

Q2: What legal right do I have to the backlog/residual commissions that are linked to pending (future) customer payments (but contractully obligated to pay) ?

Q3: I have been working on a large deal for approx. one year and expect to close it in less than 45 days. What steps could you recommend that I take to carefully document, to protect myself in the event the company attempts to withhold what is due per the commission plan in effect ?

Q4: I have reason to believe I may be "terminated" shortly after the deal is closed. I want to know how much of the order am I entitled to and when should I be paid ?

Q5: I have tried to reseach the DOL website and CA. labor law. I am having great difficulity locating specific law that pertains to high tech sales commissions and multiyear commission schedules. Please recommend specific websites, documents, sections, etc. I should review to educate myself on california labor law as it related to employers withholding commissions ?

Q5A: The really big question is how california labor law views the backlog commissions that have not been paid out yet ? Please remember that these multi-year customer agreements that the commissions are tied to represent customer contractual revenue committments to pay the company based on the mutually agreed terms, thereby the company has a "reasonable expectation of receiving payment".

This in my opinion is the single largest pool of commissions the company has systematically managed to withhold from sales teams over the years and is a wide spread practice throughout our industry.


PLease help

Tired of getting taken advantage of by the big guys

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[Michael Wechsler]

The murky, abusive, and unacceptable behavior you describe has been rampant in the dot com industry. I have heard of situations where the management will actually change the structure of commission payments even after the deal is closed -- and even allocate some of the commission to the senior department manager. These practices are fraudulent and I am confident are covered by some type of deceptive practices act.

I am unsure as to the specifics of the question you are asking and will need to perform some research -- these are 3 year agreements and there may be several issues involved. The following is my assessment of the situation attempting a logical legal analysis. If you agreed to receiving, e.g. 3% of the gross payments with regard to a client, my understanding is that they cannot later change this amount to 1.5% unless this is stated to you prior to your closing the deal. This is because you accepted their offer and already completed your end of performance. If you don't receive residuals because you are terminated, this might be perceived as fraud. As the company had the ability to make the compensation structure manifestly clear, they may bear the burden of choosing not to do so. I am surprised that there aren't more lawsuits against companies by former employees for such unlawful practices.

To begin, do you have an employment agreement or something in writing that states your commission rate? You should absolutely make certain that this is not covered in a corporate handbook or policy which has been printed and possibly handed to you when you were employed.

This is a tough situation and you will have to decide the best way to handle it as you are familiar with all the players. If you believe that the deal might be completed without you, it may be best to close the deal and send a follow up memo about your commissions over the life of the contract. If you are terminated soon thereafter you will want to discuss the commissions issue. If they refuse to comply with your understanding of the deal, you may want to tell them that perhaps they should speak to your attorney.

This is an area that should have been more closely scrutized by the state attorney general -- who probably has his hands full with all the bankruptcies...

 

[saleslaw]

Typical... but unlawful.

I just left this environment (the nasty enivironment you described) to begin a specialized sales commission practice.

When you work for a large firm with a complex compensation plan, annual plan changes and territory shifts it's important to document everything carefully. I have a email address I BCC with every communication about compensation, commissions, plan changes, etc. I also send myself an email to this account regarding verbal exchanges with the boss.

Most companies can, and do change the plans often. But chances are they have to do so in writting, prior to the point in time when it changed.

With regard to the recurring payments, and future payments - they owe you the money! (Take with a grain of salt... most attorneys like easy cases with huge payouts) You see, at the point in time you secured the contract, delivered the good/svcs and the customer sent payment #1, then the commissions are earned. When they are payed is not a matter of when, or even if you still employed (check state laws again). Once it's earned, as defined in your sales compensation plan, that's all, from a legal standpoint you need to focus on. Most companies don't like to pay sales people after you've done the work... they want you to focus on the NEXT deal and cut expenses and commissions.

Perhaps I've over simplifed this, but when you ready to take action, file a complaint with your attorney general (form is probably on your state's website), get a good employment attorney, and write a "demand letter" for payment.