Sales commission plans constantly change to reflect shifting business priorities, unstable market conditions, new product releases, and more. With these changes, businesses typically provide reps with something called a change of commission letter– or, sales commission agreement letters.
A change of commission letter, although sometimes a legal requirement, is a tool used by employers to provide sales teams with written notice that changes are being made to how they earn money.
Although not all comp changes are inherently negative, employers must exercise caution when it comes to communicating compensation changes to their sales teams. After all, salary and pay are deeply personal.
If executed correctly, a change of commission letter can strengthen your sales culture, increase trust in leadership, and facilitate pay transparency. But, if executed poorly, a change of commission letter can have devastating consequences.
That’s why today we’re giving you five ways to write a more effective change of commission letter. Let’s jump into it.
1. Nail the basics.
Every commission agreement letter or change of commission letter is different. The type of company you work for and where you’re located will dictate what you must legally include in the letter. But, there are also certain basics we recommend always including. These basics will serve as the foundation of your letter and as a reminder to employees about how you define and manage sales compensation.
Here are the basics we recommend including:
- Definitions. When laying out the terms and conditions associated with a commission plan, it’s important to define certain phrases up front. Common examples include sales activity, earned commission, commission rate, closed sale, etc.
- Commission plan. Here is where you’ll detail the specifics of a rep’s commission plan.
- Process documentation and resources. Some organizations don’t include process documentation and resources within their change of commission letters, but we recommend you do. Your reps will refer to this letter whenever they have questions about their pay. Make it easy for them and include any necessary links to official process documents and resources.
- Dates and timelines: Specify dates and timelines that impact pay. Most importantly, explain how often and when each rep will be paid whether monthly, quarterly, or annually.
- Expectations and duties. What is it that you expect your sales reps to do or be responsible for in exchange for their salary? Although these will be included in an employee’s initial offer letter and job description, you can use this space to reinforce or elaborate on expectations.
- End of employment information. Sales turnover is at an all time high. And while we hope your best reps are engaged and happy, inevitably there will come a time when a rep leaves. Your commission letter should include details about how sales commission will be handled should a rep be terminated or resign.
- Signature lines. Include a space for both the employee and the employer to sign the document to indicate they’ve received, read, and understood the information contained within the letter.
Although it can be tempting to include as much information as possible, it’s important to avoid information overload. Only include information that’s required by law or critical to a sales rep’s success.
2. Call out specific changes.
A change of commission letter should never resemble a spot the difference game where reps have to pull out their old plan and compare it side-by-side with the new one. Instead, do the heavy lifting for your team.
We recommend supplementing your commission plan outline with a dedicated section to specifically highlight the differences between the old and new plans. Be clear and direct when calling out exactly what’s changed.
You can also use this section to provide background information and insight into why certain changes were made. For example, if your organization is shifting up market and wants to dedicate more time and resources going after enterprise accounts, you may decide to increase your minimum contract size— and therefore, no longer offer incentives for smaller deals that fall outside that range.
However, using this same example you’re also giving your team a way to make up the difference by increasing the percent of commission earned on enterprise deals.
Providing that context and linking checks and balances will give your team more insight into why leadership has decided to make certain changes.
3. Provide examples and models.
It’s often difficult to understand how a commission structure will work until you see it in action. Use supplementary models, calculators, or simple written examples to illustrate how the new plan works.
Use realistic numbers to model the new plan and the old plan side by side to illustrate how compensation will change. Depending on the size of your sales team and how personalized you want to get, you can even take real deals or quarterly results and model out what the new comp plan generates compared to the previous.
While you don’t need to necessarily include this information directly in your change of commission letter, we do recommend providing it as a supplemental resource.
Let’s look at an SDR compensation plan we recently used as an example in a recent blog post:
Here’s how we’d model something like this for three levels of performance:
4. Get feedback from other sales professionals.
Before rolling out your change of commission letter, we recommend leveraging your professional network to solicit feedback from experienced sales professionals. First, remove identifying information about any company or person and use fictional numbers where applicable. Then, think of former sales colleagues or industry connections who might be willing to provide feedback.
If you can find one or two connections willing to help you out, simply ask them to look over your change of commission letter and highlight anything confusing or unclear— or that they’d take issue with as a sales professional.
Reps will be the ones on the receiving end of your change of commission letter, but sometimes, it’s hard to put ourselves in their shoes.
That’s why it’s important to step back and gather feedback from a neutral third-party— ideally, someone who’s received change of commission letters themselves. Active sales reps will be able to point out the things you may have missed or close gaps in communication that you felt were otherwise clear.
5. Leverage your change of commission letter to start a bigger conversation.
Your change of commission letter shouldn’t be the first or last time your teams hear about changes in their sales comp. Ideally, reps will be participating in conversations about new priorities or pivots for weeks or even months before any changes are formally announced.
We always recommend alerting reps to commission plan changes in one on one settings, so you can candidly address any questions or concerns. The letter should be an anticipated follow-up to confirm to your reps what you’ve already spoken about.
After your letter is distributed, keep the conversation going. Here are a few tactics we recommend using in conjunction with your change of commission letter.
- Hold Q&A sessions after giving your team time to process the information. You can take questions live, but we always recommend collecting them in advance so you have time to prepare.
- Create feedback forms. If you feel like your team is more likely to participate in an anonymous forum, collect feedback anonymously. The comments may be more harsh— but they’ll also be honest opinions.
- Encourage sales leaders to solicit initial reactions and feedback in one on ones and sales meetings. After compensation changes are announced, leadership must work together to assess the team’s reaction and remedy any causes for confusion.
There’s no one-size-fits-all approach to writing the perfect change of commission letter. As you continue to gain experience working in sales compensation and writing commission agreements, you’ll come to find what works and what doesn’t when it comes to communicating changes in sales compensation.
The best advice we can give is to test, collect feedback, and iterate. While you might not get it exactly right the first time, if you act with integrity and do your best to communicate with transparency, your team will let you know what to do better the next time around.
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