How to Write a Change of Commission Letter (with Example)

Change is constant in business. But when you aren’t transparent about change with your team, rumors can damage morale. That’s especially true when it comes to changes in pay. If you handle this sensitive communication with care, you can keep your top reps from heading for the exit.

If you’re wondering where to start, you’re in the right spot. We’ll walk through what a change of commission letter is and when to use them.

What you’ll learn:

• What is a change of commission letter?
• What to include in a change of commission letter
• Change of commission letter example

What is a change of commission letter?

A change of commission letter is a way for companies to give sales teams written notice about pay changes. Businesses issue a letter to anyone affected when business needs shift and the organization adopts new commission structures. This letter typically includes new plan structures and goals, payout schedules, equity compensation, termination clauses, and more.

When should you use a change of commission letter?

Sales commission plans change to reflect shifting business priorities, unstable market conditions, new product releases, and more. When these changes occur, sales leaders should provide reps with a written letter so they can understand the differences in their new compensation structure and its purpose.

The letter should typically be issued after a new decision is made — when all details are finalized. However, it should not come as a complete surprise to employees. You should plan to verbally communicate major changes with reps before issuing the written letter, so they know it’s coming and do not feel blindsided.

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What to include in a change of commission letter

When your organization decides to change its compensation plan, you must write and issue letters to those affected. Beyond just explaining the new compensation plan, you should also prepare to cover the following components:

• Definitions: Any sales jargon your letter includes should be defined to avoid confusion. Common sales terms include sales activity, quota, earned commission, commission rate, closed deal, etc. If your letter doesn’t spell these terms out, link to resources or provide references your reps can review.
• Commission rate and structure: This is where you’ll define the new plan and its earning potential and incentives for specific sales activities. Include the rep’s base salary so they know how much extra compensation they can expect to earn during the year.
• Goals and quotas: Include performance expectations so reps understand their targets. Clarity regarding metrics is crucial, especially if they’ve changed.
• Start date and payout schedule: Be transparent in your letter about when the new plan will start. Make the payout schedule clear and easy for reps to understand so they know when they can expect to be paid.
• Floors and clawbacks: Some plans do not pay out until a threshold, or floor, is met. For example, if the floor is 50% of the goal, a rep is not paid until they meet that percentage. A clawback, on the other hand, refers to money already paid out that must be returned, sometimes with a penalty. Be sure to include what happens to money already paid out if a deal is canceled and a clawback is requested.
• Equity compensation: If the plan includes alternative forms of compensation — non-cash pay — detail the types, amounts, and performance criteria for earning. This might include stock options or performance shares.
• Termination or resignation clause: Be sure to explain all commission plan details applicable to reps who resign or are terminated.
• Additional resources: If reps have questions about their plan, make it easy for them to find the answer on their own. Give them access to official process documents and resource links, so they have everything they need in one place.
• Signatures: To make the letter an official and legally binding document, both parties — employer and employee — must sign it, so be sure to include a space for this.

Considerations when issuing change of commission letters

Letters are a necessary part of business operations for any sales organization. But when you make big changes — especially when they affect compensation — it’s important to address them with your sales team before you send a letter.

Because it can alter a sales rep’s strategy and affect compensation, organizations should aim to change plans as little and rarely as possible. Frequent changes can affect workflow, productivity, and employee morale. In my experience, the most often you should change a plan is once a year.

Taking the time to explain the new plan and reasons for the change helps organizations reduce the chances of sales reps leaving due to the new compensation structure. For example, you might explain that although your organization previously paid X amount, it’s no longer sustainable because the company needs more capital for a new product. Be sure to emphasize the positives, such as a new product or feature that lets sales representatives compete for bigger deals that pay more.

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Change of commission letter example

Companies with straightforward compensation plans should use a basic letter format to make it easy for reps to understand. However, if you need to include complex details, you should provide clear explanations. There’s no one-size-fits-all for writing a letter, but a basic version might look something like this.

Example template

Dear [Salesperson’s name],

This letter is to inform you of changes to your compensation plan. The new plan will become effective on January 1, 2024.

[Give some context here about the reason for the change and new business goals. If it’s a lot of information, you may consider sending out a separate letter at the same time].

As a [sales representative] at [name of company], your compensation is based on these requirements [include role description or link to additional resources or performance metrics]. In addition to the expectations of your role, please be sure to read all applicable definitions related to your job [link to resource] to ensure comprehension before signing this document. If you have any questions, please reach out to your manager.

Here is a breakdown of your new commission plan:

• Base Salary: $100,000/year
• Quota: 10 qualified opportunities + $60,000 of revenue per month
• Commission structure: $100 per qualified opportunity and 1.66% of all deals generated
• On-target earnings (OTE): $124,000/year
• On-target variable: $24,000/year
• Pay period: All deals closed will be paid in the following quarter. For more details on commission processing, refer to this document [include link].
• Equity compensation: Stock option equal to 1 for every $1,000 over quota
• End of employment terms: If you are terminated or resign from your position, all sales commissions will be paid during the following quarter as scheduled. Refer to the Sales Team Handbook [include link] for details on closing your accounts and receiving your last paycheck.

I acknowledge that I have read this document, understand its contents, and agree to its terms.

Employee Signature: _____________________ Date: ______________

Supervisor Signature: _____________________ Date: ______________

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Use change of commission letters to improve clarity in your sales organization

It’s sometimes crucial for the health of your organization to change its compensation plans based on business priorities, financial goals, market conditions, and more. It’s equally important to be transparent and communicative about adjusting compensation structures with your teams. By writing a clear change of commission letter and taking the time to explain new goals, you create an opportunity to build a stronger relationship with your employees and strengthen your business at the same time.