What type of compensation plan pays employees based on a percentage of their sales?

A commission plan is designed specifically to incentivize employees by compensating them based on a percentage of the sales they generate. This type of compensation aligns the interests of the employee with those of the company, encouraging employees to increase their sales performance directly.

In a commission plan, the more sales an employee makes, the higher their earnings will be, which motivates them to work harder and exceed their targets. This demonstrates a clear link between effort and reward, making it an effective structure for roles heavily reliant on sales outcomes, such as in retail, real estate, or financial services.

Other compensation types, such as an hourly wage or salary plan, provide a fixed income regardless of sales performance, while a bonus plan typically offers a one-time incentive based on achieving specific goals or performance metrics rather than ongoing earnings tied directly to sales activity.