“Commission and Sales Bonus Plans: Read them or it will cost you.”

Question: My job was in a sales group. A significant part of the compensation was a quarterly Sales Bonus based on revenue from customers. My offer letter stated “You will be paid at 100% of your target for the first two quarters of eligibility.”

I was terminated a few weeks before the end of the second quarter. HR now tells me that the Sales Bonus plan requires a person to be on the payroll on the last day of the quarter to receive any Sales Bonus for that quarter. This requirement was not mentioned in my offer letter or the Employee Handbook. My offer letter does not contain any language that it is “subject to the terms of a Sales Bonus plan” or anything like that.

Am I entitled to a prorated portion of the Sales Bonus for the second quarter? Thank you. 

William
San Jose, California

Answer: Dear William:    

Your situation, and the question that has arisen from it, is a very good illustration of an important lesson that applies to all employment: There is no substitute for reaching out to find out all details of employment and compensation.

1. Employers have no obligation to tell employees all details of their employment relation or compensation. Do friends have to tell each other all “details” of their friendship relation? Do married people have to tell each other all “details” of their marital relation? They do not, and employers don’t either, although some states are requiring so-called “wage disclosure” laws that require certain aspects of wage information.

2. To the contrary, it is incumbent upon each employee to “protect” him – or herself by trying to nail down those details. If an employee wants to know all the details of the employment relation, including compensation, he or she should insist on finding out what they are and, if necessary, confirming them in writing, before starting the job. Does this sound reasonable? At times, yes, and at times, no. But to the extent an employee does not ask “all the questions” that employee is vulnerable to grave disappointment. In my office there is a small tapestry that reads “The large print giveth, and the small print taketh away.”

One way you can do that is by confirming – in writing – your understanding of the basic terms of your employment before taking a job.

To obtain a Model Letter that helps you do just that, simply [click here].

3. From what you wrote, your employer promised to pay you Sales Bonus “if” you become eligible, but your employer apparently did not say “when” or “how” you would become eligible. My reading of what you wrote says you are to receive Sales Bonus “for the first two quarters of eligibility.” However, nothing you wrote says “when” and “how” you were to become eligible. Either that is written in some other Sales Bonus plan document, or perhaps it is not written anywhere, but is only an informal “practice” of your employer. There’s no legal requirement that policies or practices must be in writing. But, from what you have written, that is the key to your concern: “when” and “how” an employee becomes “eligible.”

4. I suggest you ask for (a) a written explanation, or (b) a pro-rata payment: It can’t hurt to ask. I suggest you put into a letter – written with considerable respect – to the Head of HR asking “Where is it written that an employee needs to be on payroll on the last day of the quarter to receive Sales Bonus.” First, they may respond and in that response provide you with an answer that satisfies you – either an explanation or a check. Second, they may respond with an answer that does not satisfy you, but you can bring it to a Small Claims Court as proof of why you believe you deserve pro-rata payment. Third, they may not respond at all, which is something you can tell a Small Claims Court, which may sway a Small Claims Judge to award you what you seek.

If you’d like to obtain a forceful Model Letter that Demands Payment of Compensation due you from a previous employer, simply [click here].

5. You may also go directly to a Small Claims Court, or State Labor Board. Finally, unless you believe it might hurt your chances for either re-employment by that employer or by another employer, you might proceed directly to file a claim with a Small Claims Court or State Labor Board. The California Department of Industrial Relations provides a useful guide to filing a claim with them at www.dir.ca.gov.

Thanks, William, for writing in. We all learn lessons each day, and I hope if you again seek a job that pays commissions, sales bonus or any other kind of compensation conditioned on your efforts, you will request and read every word and punctuation mark about how the system works. That is becoming more and more important every day.

Best, 
Al Sklover

© 2011 Alan L. Sklover, All Rights Reserved.