Variable compensation plan for individual employees

What’s a variable compensation plan for individual employees and when do you need one?

This variable compensation plan (VCP) should be completed and applied in conjunction with the employee variable compensation policy, which sets out the context and rules for how this plan will be applied to sales and business development personnel within your business.

While there are other models and plans that you could consider for your business, this one comes well recommended by sales experts within our community as a simple model that's ideal for those starting out with a sales commission model.

Our VCP is drafted to support commissions paid to the employee each quarter by reference to the revenues that the business has received during that most recent quarter.

This is a great model for early-stage businesses where the employee’s commission should be 100% aligned with the business’ primary goals of revenue and cash collection, (commission payments held back until invoices are paid is key).

If you prefer, you can adapt the arrangements to base the VCP and the supporting policy on other structures that are more evolved. For example:

• VC paid quarterly on annual revenues, (meaning one flat commission rate over a whole year)

• VC paid monthly on invoiced sales bookings (money contractually committed by a customer but not yet received into the company bank account)

• VC paid monthly on sales bookings (very common in more established businesses but often much more complex to model and administer)

If you wish to adopt one of these alternative compensation methods, you’ll need carefully to adapt the text of this plan to clarify this.

Our experts recommend that you don't give this policy contractual status in any employment contract that you put in place but that you do reference it in that contract, make clear that the employee is expected to comply with the policy and that you have the right to update or revise it, in your discretion and when you want to.