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The payment of commission as remuneration for services rendered or products sold is a common way to reward sales people. Payments often will be calculated on the basis of a percentage of the goods sold. This is a way for firms to solve the principal-agent problem, by attempting to realign employees interests with those of the firm.[1]

Commission rates are generally based upon the achievement of specific targets which have been agreed between management and the salesperson in question.

Offering monetary compensation in the form of commission alone, or commission in addition to salary rather than simply a fixed salary, is intended to create a strong incentive for employees to invest maximum effort into their work. Common industries where commission is used include car sales, property sales, insurance broking and many other sales jobs.

A side effect of commissions is that in some cases, they can result to salespeople resorting to dishonest and fraudulent business practices in order to increase their sales.[1]

See also

References

  1. ^ a b McConnell, Cambell R.; Brue, Stanley L. (2008). Economics (Seventeenth Edition). New York, NY: McGraw-Hill/Irwin. ISBN 978-0-07-329392-9.

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