- Commission (remuneration)
The payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often will be calculated on the basis of a percentage of the goods sold. This is a way for firms to solve the principal-agent problem, by attempting to realign employees' interests with those of the firm.
Although many types of commission schedules exist, a common form is known as On Target Earnings, where commission rates are based on the achievement of specific targets that have been agreed upon between management and the salesperson. Commissions are intended to create a strong incentive for employees to invest maximum effort into their work.
Note that often a firm embracing a commission structure may not involve employees, but may solely establish themselves using independent contractors. An example of this could be a real estate agent.
Offering compensation in the form of commission alone is known as straight commission. Compensation may also take the form of commission plus a fixed salary. Industries where commission is commonly paid include car sales, property sales, insurance broking and many other sales jobs.
A side effect of commissions is that in some cases, they can result to salespeople resorting to dishonest and fraudulent business practices in order to increase their sales.
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