Employment Lawyers for Australian Executives

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Call 1300 789 302 to speak
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+61 3 9653 9123

17th June 2022

Call 1300 789 302

17th June 2022

  • Fast Facts
  •     How to avoid the 10 most common mistakes made by executives
  •     Employment Contracts
  •     Redundancy Entitlements
  •     Bonus Plans
  •     Wrongful Termination and the Law of Contract
  •     Restraint of Trade Covenants
  •     Deductibility of Legal Expenses
  •     The Fair Work Act 2009 – Unfair Dismissal and Implications for Executives
  • Emergency Checklists
  •     10 things you need to know if you are facing possible wrongful termination
  •     10 Basic rules to follow if you are confronted with a disciplinary meeting
  • Expatriates - Employment Law Issues
  •     Australian employment law and the Fair Work Act 2009
  •     Negotiating an Expatriate Employment Agreement
  • Employment Contract Review

Bonus Plans

Any well constructed Sales Commission Scheme/Bonus Plan should be:

  • simple to understand;
  • easily measurable;
  • achievable; and
  • explain what financial and staff resources the company is prepared to commit in order to generate the necessary leads.

A credible Sales Commission Scheme must be based on an equally credible Business and Marketing Plan. This plan must explain the product, the market, pricing and the people responsible for achieving the target.

Ask to see the Business and Marketing Plan

If commission on sales is going to represent a significant proportion of your remuneration package, you should ask to see a copy of the Business and Marketing Plan. If necessary, offer to sign a separate confidentiality agreement.

If the company refuses to provide you with a copy of this document or at least the relevant sections dealing with the particular product that you will be selling, you should recognise that you are being asked to take on faith that senior management really does understand its product and the market correctly.

Key terms should be properly defined

The Sales Commission Scheme/Bonus Plan should also properly define its key terms. This includes key concepts such as commission, currency, product, market, new business/follow-on business, timing of payment, overachievement, whether it is contingent on performance of other company divisions, cancellation of orders etc.

In addition, the scheme needs to make clear whether payments made under the scheme are discretionary or nondiscretionary.

If you are seeking a remuneration scheme that will ultimately create enforceable legal rights that would enable you to sue for the recovery of unpaid commission, it must be a nondiscretionary scheme. Ultimately, a discretionary bonus or commission scheme does not create contractual rights that would enable you to sue for recovery in the event of non-payment.

Discretionary bonuses need to paid on a frequent basis

If the company is only prepared to offer a discretionary bonus or commission scheme, you should pay careful attention to the timing of the payment, so that you receive commission payments on a frequent basis. This would prevent the buildup of unpaid commission which you would stand to lose in the event that your employment were terminated.

Be mindful of commercial risks the company may be asking you to assume – Will you actually ever receive the bonus?

A company that is seeking to structure your remuneration package on the basis of commissions/bonuses is asking you to assume a commercial risk of non-payment in the event that you do not qualify under the scheme.

In our experience, the schemes that have caused most problems for our clients have been those:

  • where there is a lack of transparency in the way the scheme is meant to operate; and
  • which contain provisions under which the company reserves to itself the right to revoke the commission rules.

If a scheme that is being offered to you has either or both of the above characteristics, you can draw your own conclusions about how serious the company is about ensuring that you will be paid your commission.

In this event, you would probably be better off renegotiating your remuneration package so that a smaller proportion of your income is commission/bonus related. This may not always be possible, but it is certainly the most obvious way of reducing your exposure to non-payment.

How the employment agreement defines “nonperformance” is critical

Problems relating to unpaid commission/bonuses frequently occur when the executive’s employment has been terminated for alleged nonperformance etc. How the employment agreement defines “nonperformance” is therefore critical.

Take legal advice

You should take legal advice before signing any employment agreement which involves acceptance of a separate Sales Commission Scheme/Bonus Plan.