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How it works, benefits, construction steps, legal information, template... Find out everything you need to know about the sales commission agreement!
Including an objectives clause or letter in an employment contract is an essential way of setting clear expectations between employees and the company.
A need in the majority of companies, since according to the 2020 Empreinte Humaine & Opinionway barometer, 51% of sales reps want more clear and transparent information on this topic.
In concrete terms, a sales commission agreement defines the professional goals to be achieved over a given period, offering benefits for both employer and employee.
But how do you build it? What are the legal and juridical constraints? How to manage this topic simply?
Qobra's experts answer all your questions in this article, along with a host of tips and best practices!
As mentioned above, the objectives clause in the employment contract sets precise targets to be achieved over a given period. It can also be qualified as a "quota clause" if the objectives are quantified. These same targets may be set more or less regularly (annually, half-yearly, quarterly, monthly), and the terms of variation must be defined in the contract.
Targets can be set unilaterally by the employer or by mutual agreement between the company and employees.
Objectives can be quantitative, such as achieving a sales figure or quota, or qualitative, such as completing a project or setting up an organization.
By signing the commission agreement, the employee undertakes to achieve them, in return for which the employer undertakes to pay an objectives bonus. Of course, the employee's prior agreement is required, and the targets set must be achievable.
In many cases, the sales commission agreement will also include a minimum target with penalties for non-achievement, as well as additional targets offering additional benefits if achieved.
The commission agreement, on the other hand, is used by employers to inform sales teams in writing of changes to their remuneration package. If properly executed, it can reinforce the sales rep culture, increase trust and facilitate salary transparency. It's important to write a commission agreement whenever necessary to avoid disastrous consequences.
In addition to setting sales team objectives in stone, a commission agreement has many benefits for the employer. Here is a non-exhaustive list of the main ones.
A commission agreement clearly establishes expectations between employer and employee. It defines the professional objectives that the employee is committed to achieving, thus fostering a better mutual understanding of expectations and expected results.
By setting precise objectives, an objectives clause can motivate employees to surpass themselves and give their best. In particular, it stimulates commitment by giving employees targets to reach and making them accountable for their mission.
The objectives defined in the clause enable employees' performance to be assessed objectively. They therefore provide a measurable criterion for assessing each employee's achievements and contributions, making it easier to evaluate performance during annual appraisals or periodic reviews.
An objectives clause can encourage professional development by setting targets for progress and skills enhancement. It can encourage employees to undergo training, acquire new skills and develop professionally in order to achieve the objectives set.
A clear and transparent objectives clause promotes fairness between employees by establishing objective criteria for performance assessment. This prevented perceptions of unfairness and favoritism, as objectives are based on predefined and measurable criteria.
The objectives set out in the clause help employees to prioritize their tasks and focus on what's most important to achieve the desired results. This enables better management of time and resources, by directing efforts towards priority objectives.
A sales commission agreement therefore offers a clear, motivating and measurable framework around performance!
From a legal point of view, the objective clause is valid, but it is crucial to respect certain conditions of validity to guarantee its legitimacy.
To build a robust and transparent objectives clause, several elements need to be taken into account.
The first step in drafting an objectives clause is to ensure that the employee is fully informed of the objectives set from the outset. Case law has established that the employee must know his objectives from the outset (Cass. ch. soc., March 2, 2011, no. 08-44.977).
To ensure that variable commissions are fair and motivating, the objectives clause must define realistic and achievable targets. The objectives set must be in line with the company's situation and that of the market (Cass. ch. soc., March 13, 2001, no. 99-41812). If the objectives are deemed unrealistic, the clause will be null and void. To determine whether the objectives are realistic, it is important to take into account the company's operating conditions and the room for maneuver left to the employee (Cass., ch. soc., February 3, 1999, no. 97-40.606).
Moreover, an objective is attainable if the employee has the necessary means to achieve it, and if the employer does not hinder him (C. Cass., ch. soc., February 23, 2000, no. 98-40.482). The clause must therefore specify the means made available to the employee to achieve the objectives, and establish that the employer will not be liable for failure to achieve the objectives due to its own shortcomings.
The salary variation clause must not shift the company's risk onto the employee alone. The targets set must be reasonable and fair for both parties. They must not jeopardize the employee's financial stability in the event of the company's economic difficulties.
The commission agreement of objectives must comply with legal minimums, such as the minimum wage, or with collective minimums resulting from an agreement or collective bargaining agreement. The employer may not set targets for variable commissions that are lower than the legal minimums.
The assessment of whether objectives have been met must be based on neutral, objective criteria. The employer's assessment of an employee's performance cannot be based solely on his or her own will. Criteria must be clearly defined and measurable to ensure a fair assessment.
To create an effective commission agreement, it is therefore essential to provide the employee with clear information on the objectives to be achieved and the methods for calculating variable commissions.
The objectives set must be realistic, achievable, reasonable and comply with legal minimums. Employee performance must be assessed according to objective and transparent evaluation criteria. By following these principles, the employer can build a solid and fair objectives clause, fostering employee motivation and commitment!
The employer may set targets unilaterally, but if he sets them alone despite a requirement for agreement between the parties, he may not use their non-achievement as grounds for dismissal. The employer is obliged to set targets when variable commissions depend on them.
The employer may be required to pay the employee variable commissions based on contractual criteria and previous agreements, but the judge cannot order the payment of damages for failure to comply with the contractual obligation to set targets.
The objectives must be written in the language of the beneficiary, unless a translation is quickly provided. Objectives must be achievable, made known to the employee at the start of the year, and comply with the criteria of realism and market relevance.
The employer may not unilaterally modify mutually agreed objectives, unless he obtains the employee's formal agreement.
Non-achievement of objectives can constitute real and serious grounds for dismissal, but there must be a fault or professional inadequacy applicable to the employee. Judges will assess the regularity of the procedure and the real and serious nature of the dismissal, taking into account the realism of the objectives, the employee's fault, the means provided by the employer and the market situation.
The employer can therefore set objectives unilaterally, but it is essential that they are realistic and communicated at the start of the year. Failure to meet targets may justify dismissal under certain conditions.
When a new compensation plan is decided and implemented in a company, sales reps receive a commission agreement, describing the new rules and details (quotas, commission accelerators, etc.) governing this variable compensation plan.
Generally, in the form of a PDF document, this must be adapted for each recipient of variable commissions (surname, first name, objectives, amount, commission rate, etc.), then sent and signed by the person concerned. Companies often create these documents one by one.
With this in mind, Qobra's teams decided to develop a new feature around sales commission agreements within their commission management platform. In concrete terms, companies using Qobra can now generate, send and get sign commission agreements to their employees.
This saves the staff in charge of managing this topic a considerable amount of time each time the variable commissions plan is modified!
With Qobra, managing a sales commission agreement is a 2-step process:
Firstly, Qobra offers companies the option of importing one or more sales commission agreement templates in PDF format, and integrating tags which are automatically filled in for each employee targeted by the commission agreement template, thanks to the personal data previously sent. In this way, with just one click, Qobra generates the corresponding commission agreement for each employee.
Then, each commission agreement template generated by Qobra can be exported and sent by a campaign, to be signed electronically directly on Qobra!
On the basis of all the above information, Qobra's experts have created two templates for sales commission agreement, one in English and one in French.
This template can be adapted to any position (Sales Development Representative, Business Development Representative, Account Executive, Customer Success Manager, Account Manager, Sales Manager, Head of Sales, etc.), any sector and any company size.
Each company can easily adapt this sales commission agreement template to its own commissioning rules.
In conclusion, the sales commission agreement is a powerful tool for aligning expectations, motivating employees, assessing performance, fostering professional development and, above all, ensuring transparency around objectives.
Building an effective objectives clause requires providing clear information, defining realistic and achievable objectives, complying with legal minimums, establishing objective evaluation criteria and following applicable legal rules.
A set of prerequisites facilitated by tools like Qobra that make managing this topic simple, fast and efficient.
As a reminder, with well-defined objectives and appropriate communication, the sales commission agreement can contribute to the mutual success of employer and employee in achieving the objectives set!
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