Common Pitfalls when Negotiating a Sales-Based Employment Contract
When a great job opportunity presents itself, it is easy to let emotions cloud your better judgement and gloss over the terms of your future employment. The primary focus is on joining the business and, as salespeople are driven by compensation, there is a common assumption that, as long as the numbers stack up, then the rest will be fine. In many cases this doesn’t result in a negative consequence, but sometimes an innocent oversight can have grave consequences both during employment and post termination.
Here are three seemingly innocuous contractual clauses that can detrimentally affect your ability to earn.
Collections
Many commission payments are dependent on hitting targets, but consider having an annual target and signing a deal in month eleven. The company will only count the deal towards your target on receipt of payment, yet the invoice has 30-day payment terms. You have worked the whole year, this deal will put you over target, and the associated revenues are the difference between a bumper pay cheque, and nothing.
Companies often proclaim to "take a view on it" when salespeople are close to hitting target but, in my experience, they don’t pay out unless they must, so this type of situation needs to be accounted for, in writing, before signing the contract. Run this, or an appropriate scenario through with your future employer, and find a reasonable compromise.
In this instance, one suggestion might be, if you were to close a deal, obtain a signed contract or letter of intent, as well as invoice a client within month 11 only, then you would be given an extension of the 12-month time frame to collect this revenue. The extension would simply be proportional to the payment terms set out within the invoice, so in the example above it would be 30 days from the invoice date. Assuming the client paid within their allotted time frame, the revenue from this deal would count towards your annual target and commissions would be paid in accordance with the terms of the agreement.
Renewals
It is important to look past the first sale and be contractually clear as to how these are viewed by the company.
For example, if a product is sold a second time, to the same client, is it regarded as a renewal of business and paid at a different commission rate, or is it viewed as two separate sales? Also, what will happen if you sign a three-year deal with a 10% uplift year on year, or a multiple unit deal? Will you be paid on the total revenue accrued and, if so, when?
It is important to understand at which point your employer awards a "preferred supplier" status to accounts that generate a consistent flow of revenue, and if this happens, will your commission be reduced.
Job Description And Title
A true contractual reflection of job title and duties matters, and there are two occasions where it can come back to haunt – in the event of a dispute, and post-termination with future employers.
Clarity of role is particularly important in the event of a dispute. The job description describes the boundaries of the employee’s responsibilities and is the default document in the face of a disagreement. If it doesn’t truly reflect the role being performed, then your position is tenuous.
For example, the company may come to recognise a lazy or complacent sales manager and put his job in jeopardy. In an attempt to justify their contribution, the accused then turns on those who were picking up the slack, stating that they are operating out of their job roles. Following the official company procedures, this then goes through independent adjudication, and the default document upon which to make a verdict is the employment contract.
An inaccurate reflection of job title and duties can also come back to haunt you several years after leaving a firm. A future employer who seeks historical references will receive this information from the HR department of the previous employer. If the job specifics don’t tally with what is written on your CV, then it looks like you have exaggerated your position. This is all down to not being bothered with the small print.
It may seem alien to take such a comprehensive approach before beginning a new job, but it is important to explore every scenario to find the correct balance between protecting both parties in case of a dispute, or if you come to part ways. Review your contract and ask for clarity before signing it if there's something you don't understand. If there is something you would like to improve, ask to negotiate. Be reasonable and professional and observe how the company responds. If there is a reluctance to do so, then that is the company’s prerogative, but at least you know what to expect and can weigh up whether the opportunity is really worth it.