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How to Manage Hierarchy Overrides in Commissions

By November 17, 2020 No Comments

Everyone wants a promotion, right? Well, that depends. For successful salespeople, a promotion may mean giving up lucrative commissions that increase their yearly income. That’s why organizations often implement hierarchy overrides for managers to earn commission based on the performance of their team.

Sales manager discusses strategy with direct reports who earn commissions on sales.

Hierarchy overrides in commissions can help organizations hang onto and foster talent.

A higher salary combined with the promise of continued commissions will keep a sales manager motivated as they move up through the ranks of the company. It also allows an organization to hang onto promising talent and incentivize leadership to continue driving sales through their teams.

But once an organization determines that hierarchical commissions is the best course of action for its sales commission plan, it must then decide how to distribute this incentive.

Benefits of Hierarchical Commissions:

When sales managers have the opportunity to earn from their direct reports, they’ll have more motivation to encourage their people to succeed. Managers who can devise effective strategies and find ways to inspire their team will earn more money for themselves and increase overall revenue for the company.

Breaking Down Hierarchical Commissions:

A sales manager or supervisor typically earns a smaller percentage of the sale compared to the rep who closed the deal. It’s important to consider what percentage of the sale an organization can afford to distribute then split that amount between sales manager and sales rep.

A good example would be if the organization determines that it has the capacity to direct 12% of a sale to commissions. In that case, the majority of it would be applied to the rep’s commission while the manager would receive the rest. It could be broken down to award 8% to the rep and 4% to the manager.

Sales manager leads a meeting with her direct reports, from whom she earns commission.

Rules of Managing Hierarchy:

  • Outline Expectations: Make it clear to your management that for them to increase their earnings, they need to support a successful sales team below them. Detail their commission rates and how they may change over time based on quota attainment for themselves (if they are still expected to sell) and for their team overall. If additional conditions factor into their wages, break that down for them with a clearly communicated commission plan adapted for different levels of seniority.
  • Set Managers Up for Success: Be aware of the tools and resources your managers need to lead a strong team. This could be leads, materials, or support from additional team members. For some managers, access to data may help them map out a successful strategy. Our Enterprise and Managed Services clients may also provide web sales portals to their teams which would allow managers to view progress for each of their direct reports at any time, giving them the insight they need to plan for the future.
  • Reliably Pay Promised Commissions: If the organization uses commissions to incentivize managers as well as sales reps, ensure that those wages are paid on time and accurately. To do this, find a commission management application like Core that can automate the entire process, eliminate errors, and calculate every individual rate with the click of a button.

Throw in a Bonus?

Further, encourage managers to hit goals and targets throughout the year by offering a bonus. While they earn a portion of commission on each sale, a year-end or quarterly bonus could help managers keep an eye on the big picture and the overall sales goals. The bonus can be calculated based on how well the sales team your manager leads hits a regular goal or it can be a predetermined amount only collected if the team reaches a specific objective.

Core can help you manage all levels of hierarchical overrides and commission payouts. Drop us a line or set up a free demo and we’ll show you how we can optimize even your most complex sales commission processes.

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