Posted in Marketing and Strategy Terms, Total Reads: 559
Definition: Sliding Commission
It is a Sales Personals compensation method in which unlike fixed commission, compensation varies and its varying percentage depends on the sales amount or quantity. Basically, sales commission is computed at different percentage level at different sales volumes.
Company A following fixed commission, give a salesperson 20% of the sales amount no matter how large or small is the sales amount.
Another company B following sliding commission give the salesperson 15 % if sales is below 10000 rupees. It pays 20% if her sales is above 10000 and below 15000 INR. If the sales is above 15000 the company pay 25% as sales commission.
So, company B’s sales commission is an example of sliding sales commission.
In the case of sliding sales commission, commission percentage may move up or down with the sales. Usually it moves up with the sales but it can move down also with sales. For example- If a sales personal in a brokerage firm gets commission on decreasing sliding scale. Her commission percentage decreases if she gets a large investor since large investors pay smaller percentage of their stock purchase as commission.
However, in sliding sales commission system if there is no restriction, it can lead to collusion sometimes, between the sales personals in order to get more commission.
In company B there are 2 employees, Evil, Devil. Evil tells Devil: Hey Devil my sales amount is 12000 yours is just 7000 INR, you are getting just 15%(1050) as commission and I am getting 20%(2400). Total we are getting 3450 as commission. Why don’t you give me your sales amount and I will have a total of 19000 INR as my sales amount, and I will get 25% on that 19000, that is a total of 4750 as our commission.
Thus, Evil and Devil decided to collude and looted their company big time.
This collusion can be reduced if certain restrictions are imposed on the in the compensation system.