Lowenstein Sandler's Executive Compensation and Employee Benefits Podcast · 2026-02-19 · 12 min
Key moments - from our scoring
Substance score
50 / 100
Five dimensions, 20 points each
Commission plans require careful legal structuring to avoid disputes and comply with wage-and-hour laws across different states. Megan Munson and Amy Schwind of Lowenstein Sandler's executive compensation and benefits practice break down the four core components every written commission plan should include: eligibility (defining who qualifies and what sales count), earning triggers (when commission is legally earned - a critical distinction tied to wage obligations), calculation specifications (the metric, rate, and any deductions), and payment timing. The discussion emphasizes that ambiguity in commission plans is construed against employers and that provisions are routinely scrutinized during corporate due diligence. State requirements vary significantly - New York and California mandate written plans for commission salespeople. The speakers stress that when commission is earned has outsized importance because it determines wage-and-hour compliance, payment deadlines under state law, and obligations upon termination. They also address draws against future commissions, clawbacks for customer cancellations, Section 409A tax compliance for post-termination payments, and the need to reserve company discretion to modify plans while avoiding retroactive changes.
Eligibility (who qualifies and what sales are eligible), earning (when commission is legally earned), calculation (the specific metric, rate, and any deductions), and payment (when and how often the employee receives the commission).
Once commission is earned, it becomes a wage subject to state wage-and-hour laws, which determines payment timing requirements, what happens upon termination, and creates potential liability if earned commissions are not paid; vagueness here can force employers to pay commissions before a sale is final or payment is received.
Some states like New York and California legally require written commission plans for commission salespeople; even where not required by law, written plans are best practice to prevent disputes and because they are routinely reviewed during corporate due diligence.
No, employers cannot retroactively change a commission plan; they should reserve the right to modify or terminate the plan going forward, but changes cannot apply to commissions already earned.
If commission payments continue after an employee leaves, they must comply with Section 409A's deferred compensation rules or be exempt; failure to align post-employment payment schedules with 409A-permissible timing can trigger adverse tax consequences for the employee.
Our reviewer’s read on each dimension, with quotes from the episode.
The episode covers foundational commission plan components methodically (eligibility, earning, calculation, payment) with some useful specifics like the importance of defining when commission is 'earned' for wage-and-hour compliance. However, it remains largely checklist-oriented without deep substantive insight into *why* these structures matter operationally, real-world failure modes, or trade-offs. The content is educational for someone new to the topic but offers limited novelty for an experienced operator.
Once a commission is earned, it's subject to wage and hour requirements. This is a critical component as it is linked to other aspects such as when commission must be paid under applicable law
You can't just assume that everybody knows you know what we mean by this. You want it defined within your plan.
The framework is entirely standard legal-compliance focused best practice. There is no contrarian thinking, no first-principles questioning of commission structures, and no original insights into incentive design or behavioral outcomes. The episode reads as boilerplate employment law guidance that could apply to any jurisdiction and any sales function, with no distinct perspective.
There are really four key components. Core components eligibility, who and what is eligible earning, when is the commission earned? Calculation of the commission, and finally, when will the commission be paid?
it is a good idea to have one to avoid disputes
Both speakers are senior counsel and partners at a prominent employment law firm, so they have legitimate credentials in their domain. However, they are legal specialists, not operators who have designed or managed commission plans at scale in competitive sales environments. The expertise is compliance-focused, not business-outcome-focused, which limits relevance for a B2B operator trying to build effective incentive structures.
I'm one of your hosts, Megan Munson, a partner in Lowenstein Sandler's executive compensation, employment and benefits Practice group.
Amy Schwind and I'm senior counsel in the same group.
The episode names a few states (New York, California) and references general concepts like clawbacks, chargebacks, and tiered rates, but provides almost no concrete examples, case studies, company names, or quantified scenarios. No real-world commission disasters are detailed; no metrics or dollar thresholds are discussed; no specific commission structures are modeled or compared.
Some states, like New York and California, for example, require a written commission plan for commission salespeople.
is it a flat rate? Are we doing a tiered rate, Some sort of accelerator cap or quota?
The host asks clear, sequential questions that follow the outline logically, but there is minimal pushback, probing, or challenge. When Amy makes claims (e.g., 'this is the single most significant thing'), the host accepts and moves on rather than asking for deeper justification or examples. The conversation is cordial but transactional, designed to deliver safe legal guidance rather than to explore complexity or tension in incentive design.
I think that makes a lot of sense, Amy, especially in going back to your earlier point
Well, thank you so much, Amy. This was a very helpful discussion
Computed from the transcript - who did the talking, and the words that came up most.
In this episode of Just Compensation , Megan Monson and Amy C. Schwind discuss legal considerations regarding commission payment, covering the key components of commission plans. They advise against ambiguity in plans by suggesting employers prepare clear, written commission plans that define eligibility, earning criteria, calculation, and payment timing while complying with state wage-and-hour and tax laws. Speakers: Megan Monson , Partner, Executive Compensation and Employee Benefits Amy C. Schwind , Senior Counsel, Employment
Transcribed and scored by The B2B Podcast Index.
Speaker A: Welcome to the Lowenstein Sandler Podcast Series. Before we begin, please take a moment to subscribe to our podcast series@lowenstein.com podcasts or find us on Amazon Music, Apple Podcasts, Audible, iHeartRadio, Spotify, SoundCloud, or YouTube. Now, let's take a listen.
Speaker B: Welcome to the latest episode of Just Compensation. I'm one of your hosts, Megan Munson, a partner in Lowenstein Sandler's executive compensation, employment and benefits Practice group. I'm joined today by one of my colleagues, Amy Schwind, who I'll turn it over to you to introduce herself.
Speaker C: Thanks, Megan. Hi, my name is Amy Schwind and I'm senior counsel in the same group. I'm happy to be here today.
Speaker B: Today's discussion will focus on key considerations for employee commission plans, often particularly sales. Employees are compensated in part by commissions and, um, through commission compensation, employers aim to provide incent for employees to make sales and drive predictable revenue, while also using it as a tool to attract and retain talent. In this podcast, we will explore best practices and legal considerations for commission plans. As always, if you have questions related to particular circumstances in your workforce or regarding specific legal issues, we encourage you to consult with your legal counsel. So to jump right in, Amy, what are some big picture considerations employers should be aware of when it comes to commission plans?
Speaker C: First and foremost? Some states, like New York and California, for example, require a written commission plan for commission salespeople. And even if one is not required by applicable law, it is a good idea to have one to avoid disputes. Also, keep in mind that commission plans are routinely looked for during the corporate diligence process. It's important to avoid ambiguity, as it is typically construed against the employer. Another rule of thumb is that employers can't retroactively change a plan.
Speaker B: So if a company does in fact memorialize their commission plan in writing, what are the recommended core components of such plan?
Speaker C: There are really four key components. Core components eligibility, who and what is eligible earning, when is the commission earned? Calculation of the commission, and finally, when will the commission be paid?
Speaker B: I think that makes a lot of sense, Amy, especially in going back to your earlier point that part of the goal is to avoid there being any sort of disputes. And so I think touching on these kind of key areas, it would be very clear of the terms of such commission arrangement. Can you provide a little bit more insight into eligibility for commissions?
Speaker C: First, is there a, uh, plan period? Are we looking at a calendar year or a fiscal year or something else? For what type of sales is the employee eligible to earn commission. So you'll want to define qualifying sales, products or services and, um, territories of any channels and deal types and include any exclusions. For example, if you want to exclude house accounts or renewals or internal transfers. And then what does the employee have to do to earn the commission? So first, what roles are eligible to earn commission? Does the employee have to be solely responsible or the sole originator of the contract or deal? Uh, do they have to have material involvement? Is there any splitting or sharing of credit on sales or accounts? And are there any other prerequisites like having internal approvals or submitting documentation in CRM? Adhering to all, uh, sales processes and requirements, standards and policies? Now, that would be pretty typical.
Speaker B: And you mentioned another one of the core components is related to when commission is earned. So what's the significance of when commission is earned?
Speaker C: Once a commission is earned, it's subject to wage and hour requirements. This is a critical component as it is linked to other aspects such as when commission must be paid under applicable law, since it is then a, uh, wage, and what happens upon termination of employment. From my perspective, this is the single most significant thing that needs to be in a commission plan. And employers do often leave this out. Is it based upon customer contract execution, payment received from the customer, the employer making commission payment to the employee, Is it not earned until paid, or something else we need to say when the commission is earned? And absence or vagueness of this provision can lead to unintended consequences like having to pay commissions before a, uh, sale is final or payment is received.
Speaker B: Yeah, so I think from what you've just said, Amy, this, I think, really seems to emphasize the importance of having counsel involved in drafting certain commission arrangements to ensure that they do have all of the right core features in that arrangement.
Speaker C: Absolutely. It can be really complex. Hopefully this podcast helps to distill it down. But yes, absolutely. There are, um, things from a legal perspective that you do just really want to make sure that you have included in your plan.
Speaker B: So what are some things to think about? When it comes to specifying commission calculations,
Speaker C: it's important to ensure the calculation is specific and transparent. What metric applies? Uh, so is it contract value or the build amount or the collected revenue or the gross margin or something else? Want to define key terms based upon which you are calculating commission? Um, for example, common ones like net revenue or net new ARR or gross revenue or net invoice amount. You can't just assume that everybody knows you know what we mean by this. You want it defined within your plan. Also think about is there anything to net out? And this needs to be factored into the equation to avoid improper deductions from earned wages. So for example, things like taxes or refunds or credits, fees, shipping, discounts, material costs, are we netting anything out from the equation? Also, are you paying commission on uh, renewals, contraction, churn existing customer expansion? If no, be clear and if so, is it at the same or a lower rate? Must there be active effort or is auto renewal of a contract sufficient? Employers that want to incorporate a chargeback or a clawback or other repayment, true up or adjustment in the event a, uh, customer returns a product or cancels a service or otherwise if there is an overpayment, need to be mindful of when commission is deemed earned to avoid running afoul of wage and hour law by taking deductions from earned wages. This can be addressed in various ways to avoid issues and again, um, is a good reason to get legal counsel involved. Also specify the rate applicable to the calculation. And um, so is it a flat rate? Are we doing a tiered rate, Some sort of accelerator cap or quota?
Speaker B: What should be specified in terms of commission payment?
Speaker C: Once earned, commission must be paid. So when is commission paid? Um, it should be specified, is it within a, ah, specified time after a month or quarter close? And um, state law may dictate payment timing.
Speaker B: What if an employer wants to offer an advance or draw against commissions? Because I know I've seen that come up from time to time.
Speaker C: Yeah. Under this type of arrangement, the employee generally receives an advance or credit against future earned commissions. It's important to specify whether it is recoverable or non recoverable and the method and schedule of reconciliation of the amount advanced and the actual commission earned. This again involves specific drafting to ensure compliance with wage and hour law.
Speaker B: Should a commission plan specifically address what happens upon a termination of employment?
Speaker C: Absolutely. This is another very key component that I often see is missed. A, uh, commission plan should address what happens when employment terminates. Specifically, is the employee still eligible to earn commissions? Does the employee have to be there on the date of payment to receive commissions? Is commission not earned until paid, and the permissibility of these types of provisions is impacted by applicable state law.
Speaker B: And I'll also just add in that from a tax code perspective, in particular section 409A of the internal Revenue Code that governs deferred compensation, any payments, um, paid with respect to compensation related to employment need to either comply with or be exempt from 409A and therefore, if there are payments still being made after an employee no longer longer works there. Careful care needs to be taken to make sure that the payment schedule aligns with what's a permissible payment schedule under 409A. Otherwise, they run the risk of being subject to certain adverse tax consequences for failing to follow 409A, which we've covered in prior, uh, episodes of this podcast. In closing, what are some other good rules of thumb when it comes to commission plans?
Speaker C: It's important to reserve the company's right to modify or terminate the commission plan going forward, and also to preserve the company's sole discretion to interpret the plan and resolve disputes. Companies should state that the commission plan is not a contract of employment for a term and it does not alter at, uh, will employment. Also ensure the employee receives a fully executed copy of the plan, and it's always a good rule of thumb to review a commission plan annually or at least periodically.
Speaker B: Well, thank you so much, Amy. This was a very helpful discussion highlighting legal considerations regarding commission plans and really emphasizes the need of proper tapering and structuring for compliance with various wage and hour laws, as well as trying to avoid any ambiguities or disputes with employees. We encourage you to consult with Council on specific questions regarding commission plans or requirements. Thanks for joining us today. We look forward to having you back for our next episode of Just Compensation.
Speaker A: Thank you for listening to today's episode. Please subscribe to our podcast series@lowenstein.com podcasts or find us on Amazon Music, Apple Podcasts, Audible, iHeartRadio, Spotify, SoundCloud, or YouTube. Lowenstein Sandler podcast series is presented by Lowenstein Sandler and cannot be copied or rebroadcast without consent. The information provided is intended for a general audience and is not legal advice or a substitute for the advice of counsel. Prior results do not guarantee a similar outcome. Content reflects the personal views and opinions of the participants. No attorney client relationship is being created by this podcast and all rights are reserved.
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