Commission Cap

Commission Cap is the term for the upper limit, which is set in a commission model. In other words: how much commission an employee can maximally earn within a given period or agreement.

What is a commission cap? The maximum payout you can get on commission earning.

What is the purpose of a commission cap?

A cap is applied to give the company control over labor costs and to avoid situations where extraordinarily large sales or unforeseen trades result in disproportionately high commission payouts. It is a safety valve that ensures predictability in budgets.

For management, it is a tool to balance motivation and financial sustainability. For the employee, this means that there is a clear framework for how far effort can be rewarded in a single model.

Advantages and disadvantages of a cap

• Advantages:
  • Gives the company greater financial predictability.
  • Reduces the risk that individual sales significantly lower the margin.
  • Makes it easier to plan and compare performance across your team.
• Disadvantages:
  • Can be perceived as demotivating if the employee reaches the ceiling quickly.
  • Risk that sellers stop pushing through extra trades once the cap is reached.
  • Can create the experience that effort and reward are no longer related.

Examples of using the commission cap

A company can decide that the commission for a seller stops at DKK 200,000 annually - regardless of how many customers they bring in. Others choose to set a cap per deal, for example that a maximum commission of DKK 50,000 can be earned for a single contract.

Some organisations combine a cap with bonus schemes so that sellers continue to have incentive when they reach the top tiers. In this way, the balance between control and motivation is maintained.