In April, a
lawsuit involving commissions at Oracle was tentatively settled, bringing a decade-long court case to a close. The case involved allegations of sales compensation payment missteps, including:
- Not providing signed commission agreements;
- Inaccurate itemized statements; and,
- Not accurately accounting for commission payouts.
The tech company denies all wrongdoing in the case and does not admit guilt as part of the settlement. The case, however, highlights how good sales compensation hygiene and an effective sales performance management (SPM) software solution can help you
get to transparent plan calculations and performance reporting.
This article touches on some of the allegations in the case and what companies can do to protect themselves from similar issues.
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Allegations |
What Can Companies Do? |
- Did not provide employees who earned commission wages with a written commission contract at the start of employment and failed to provide a signed commission contract to those employees in a timely manner.
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- Establish a clear timeline for sales compensation design decisions that allow plans to be ready at the start of a new plan period.
- Create a digital signature process for all sales employees to sign off on their new plans (using software like DocuSign or equivalent tracking in your SPM software).
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- Provided inaccurate wage statements.
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- Ensure wage calculations and statements go through multiple rounds of automated and manual cross-checks.
- Make all statements available via your SPM system.
- Establish a process for any challenges to sales compensation performance and payment calculations that allows for a quick, equitable review and resolution of the challenge put forward.
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- Did not pay earned commissions within the time frame set by state law.
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- Establish a process that defines timelines when sales compensation payouts will be made (e.g., the second pay period following the end of the month or other performance period).
- Communicate the timeline in the plan document delivered to salespeople.
- Ensure the process and procedures follow not only federal law but all state laws; certain states such as California have enacted laws that require companies to follow processes not required by other states (e.g., obtaining salesperson signature on newly issued sales compensation plan documents). Many companies simply adopt state requirements nationally assuming they are good practice and not too onerous on the company. This allows for a single process to be run nationally.
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- Wrongfully reduced commissions to offset the costs of doing business.
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- Commission plans and rates once set should not be revised to account for increased costs and/or company
overhead (presumably, salespeople have no impact on these costs).
- If salespeople impact certain measures of profitability and leadership
wants to hold salespeople accountable for their impact on profitability, place the profitability metric closest to what salespeople control (e.g., gross margin or “sales margin”) in the incentive plan as a metric with clear calculations.
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- Improperly reduced commissions earned after sales were booked based on criteria that it did not disclose to its employees.
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- Create clear metric calculations and document these calculations in the plan documents sent to sales employees.
- There
are situations in which adjusting credit is appropriate (such as customer contract cancellations after an incentive has been paid); clearly document those cases in the terms and conditions area of the compensation plan document.
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- Did not explain in its commission contracts how commissions would be computed and
paid, and retained “unilateral discretion” to change any of the commission contract’s terms.
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- Most companies do, in fact, have a “management reserves the right” clause to handle any unique and unforeseen circumstances that may arise; that type of clause can and should be in the plan.
- However, a governance committee should be established to handle these unique cases so they are treated consistently and fairly (to the company and the employee), and use clear guidelines.
- Ensure your legal department is either part of the governance committee or, at minimum, part of the group that establishes the governance committee’s processes.
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Lawsuits in the world of sales compensation are becoming increasingly common, especially for large sales forces with significant sales compensation spend. Incorporating some of the best practices listed above should limit the chances that your organization becomes a target of such litigation.
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