Advantages & Disadvantages of Salary Plus Commission

by Neil Kokemuller
Car dealerships sometimes pay salary plus commission to new salesmen as they gain business.


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Motivating your employees by paying by commission can reward good work, but it has some downsides as well.

Salary plus commission is one of the more common compensation structures used by employers to pay salesmen. Employees receive a guaranteed base salary amount but also earn an undefined amount of commission based on the amount of sales they make. Intended to motivate better sales production, this pay structure has some strengths and some weaknesses relative to other pay plans.

Pro: Rewards Performance

A primary reason companies use straight commission or a plus commission pay plan is to motivate employees toward better results and to reward high performers. If you pay salesmen a straight salary, some may have limited motivation to exceed basic expectations. However, by adding commission-earning opportunity, companies drive salesmen to set more aggressive goals, to work through obstacles and rejection, and to continue to prospect and seek new selling opportunities.

Pro (or Con): Stability

Thought a straight salary offers the most stable income for employees, sales employees who have worked on straight commission often appreciate a higher level of guaranteed income and base pay. The balance of stability and incentive to perform at a higher level has a nice balance of benefits from both straight salary and straight commission. The key is to offer just enough stability that employees feel satisfied with their basic financial security but still have motivation to sell more to earn more.

Con: Complexity

Salary plus commission is more difficult to administer than a pay structure with one basic type of pay. With this pay structure, payroll staff must manage both the salary and commission aspects of pay. Additionally, salesmen can become confused about how their pay is calculated, especially if more than one type of commission is offered. Some companies offer multiple commission percentages for multiple product and service categories, as opposed to one commission rate across the board.

Con: Limited Impact

Salary plus commission critics most often point to challenges in execution, not the ideas behind motivating employees with commission. Some companies use relatively small commissions as small add-ons to standard salary or wages. This can make the commission portion of pay a token gesture that adds to the company's payroll expenses without truly invcentivizing employees to sell more. In a worst-case scenario, salesmen see the commission as a slap in the face and become bitter toward the employer.

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