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Accounting Policy and Procedure for Sales Compensation – Expense, Accrual, Reconciliation – Part 2

October 28th, 2009 | by kutenk |

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Establishing Commissions
Commissions are calculated based on the net new contract value added during the period. Net new contract values are determined based on the value of new contracts less those contracts that have expired, less returns and adjustments due to contract changes and accounts receivable balances e.g., bad debt write-offs, short payments.
Commissions are not considered earned by the sales representative and payable by the Company until:
?   The Company receives full payment of all amounts due from a customer during the initial 12-month period of a transaction document.
?   All other requirements set out in the transaction documents have been fully satisfied and completed.

The Sales Compensation Committee at its sole discretion determines whether the requirements for payment of commissions for any transaction have been satisfied and its decision is final and binding on all affected parties. The Company will not pay commission for transactions in the following situations:
?   Customer default or transaction termination
?   Beta transactions and product trials
?   Trials
?   Product returns
The net new contract value quota is broken down into monthly expectations. Generally, the annual quota is spread out during the year smoothing the “rhythm of the business” provided by Financial Planning and Analysis. The “rhythm of the business” generally shows the dollar amount per contract growing quarter over quarter until the fourth quarter, which represents the Company’s busiest sales volume quarter.
Unless specified by local laws and regulations, commissions owed to employees are paid in the last pay period of the month and 30 days after the transaction is deemed complete.
Based on transaction and activity reports, Sales administration is responsible for calculating the sales compensation paid to sales managers and representatives.
In accordance with the accrual policy, monthly accruals shall be calculated by Sales administration for sales commissions earned and not yet paid. The accrual must be reversed the following month.

Performance Measurement
Measurement of performance and quota attainment is based on the net new contract value generated from accepted orders. At least quarterly, the sales manager and sales representative formally assess quota attainment and performance management.

Winner’s Circle Award
Winners Circle is an annual award to selected sales representatives, which executive management in its sole discretion may offer to a percentage of those eligible sales representatives and account managers who have achieved their sales quota. The details of this award are determined by the Sales Compensation Committee and may include gift certificates, trips, or cash bonuses.

Quota Changes
In order to balance performance and maximize sales for a geography, Sales executives may approve changes to an individual employees quota if it does not affect the geographic area’s quota. Changes must be submitted to Sales administration at least one week prior to the effective date.
Quotas shall be fully distributed to individual account managers with no quota held at the management level except where the manager holds a quota covering a period until a new sales employee is appointed. Quota changes must affect only future periods.

New Hire/Transfer into Positions with Incentive Plans
At their sole discretion, Sales management with Sales administration is responsible for account/territory assignment and quota creation for new hires or transfer employees. Quotas shall consider time and opportunity considerations.

Termination of Employment
In the event of an employee’s employment terminates, sales incentive compensation should be paid in accordance with the payment terms of the employee’s incentive compensation plan.

Termination of Plan
In the event an employee transfers to a position without an incentive plan or into a position with a different plan, the sales representative shall receive the eligible amounts earned from the previous position and is subject to the new commission plan in the new position.

Transaction Audits
In order to ensure that transactions are aligned with the Company’s business objectives, the Company, in its sole discretion, reserves the right to review and audit any and all transactions periodically and without any advance notice.
Any executive who knowingly participates in a transaction that is designed to and/or does circumvent the provisions of the sales plan will be discharged.

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