Acompany provides wages to its employees based on the amount workers produce. the more employees produce, the more they earn. this type of plan is called:

The type of business plan according to the example above is called a commission plan. Commission plan refers to an arrangement that pays employees based on performance.

Further explanation

A commission plan is the best strategy in motivating the employees with an incentive instrument. It is generally payable to an employee to sell some products or services. A commission can be paid a percentage or a flat sum depending on the volume of sales. To calculate commission, you may multiply the relevant commission rate by the basis for a given period.

There are 3 types of commission paid to employees, such as:

•Straight commission

It means the entire commission of the worker is paid based on a proportion of their total sales. For extremely skilled and motivated employees, this can be a very profitable agreement.

•Base salary plus commission

The employee guaranteed base salary, plus a proportion of their revenues in a specified period, it is preferred by many employees. Because it brings benefit to the worker that during slower sales periods they can depend on their basic salary.

•Residual commission

This is prevalent in insurance companies where the employee would still receive a proportion of payments from his/her customers as long as the customer remains with the company.

Learn more

If you’re interested in learning more about this topic, we recommend you to also take a look at the following questions:

•Formula for calculating commission:  

Keyword: Business plan, business strategy, commission plan

Subject: Business

Class: 10-12

Sub-chapter: Management