Draws and Guarantees Policy
Establish consistent guidelines for providing draws (advances against future commissions) and guarantees (minimum payment commitments) to ensure fair and consistent application, financial risk management, legal compliance, clear terms and documentation, and appropriate approval and oversight.
1Purpose & Objectives
Establish consistent guidelines for providing draws (advances against future commissions) and guarantees (minimum payment commitments) to ensure fair and consistent application, financial risk management, legal compliance, clear terms and documentation, and appropriate approval and oversight.
- •Fair and consistent application
- •Financial risk management
- •Legal compliance
- •Clear terms and documentation
- •Appropriate approval and oversight
2Scope
Applies To
- •New hire guarantees
- •Ramping draws
- •Performance improvement draws
- •Market-based guarantees (competitive situations)
- •Special circumstance guarantees
3Definitions
Draw
An advance payment against future earned commissions. Employee receives advance which is reconciled against earned commissions.
Guarantee
A minimum payment commitment for a specified period. Employee receives guaranteed amount regardless of performance with no repayment required. Typically time-limited (3-6 months).
4Key Provisions
Guidelines for when draws and guarantees should be used based on specific business situations.
New Hire Situations
Typical Duration: 3-6 months. Typical Amount: 50-100% of target incentive.
- •Sales role with long sales cycle (>90 days)
- •New hire needs time to build pipeline
- •Territory is new or has limited existing pipeline
- •Competitive talent market requires guarantee to attract candidates
Territory Transition
Typical Duration: 1-3 months. Typical Amount: 50-75% of prior average earnings.
- •Major territory change mid-year
- •Territory significantly smaller than previous
- •Requires time to rebuild pipeline
Plan Change
Typical Duration: 1 quarter. Typical Amount: 75% of prior average earnings.
- •Significant plan redesign mid-year
- •New plan may result in short-term income disruption
- •Bridge payment to ensure smooth transition
Competitive Retention
Typical Duration: 3-12 months. Typical Amount: Varies based on market offer.
- •Top performer at risk of leaving
- •Competitive offer includes guarantee
- •Retain key talent during restructuring
5Compliance References
Federal Laws
- •FICA/Medicare
- •Federal income tax withholding (supplemental wage rate)
State Laws
- •California: Advances and draws subject to specific rules
- •New York: Commission pay regulated
- •State wage law restrictions on recovery of draws
- •State-specific rules on recoverable draws