Stop Reopening Closed Commission Periods: A Smarter Way to Manage Retroactive Adjustments

Commission period is approved, payroll is run, and you start getting calls from your sellers because there is a transaction that was updated 2 months ago that impacts their compensation. So what are you going to do? 

You will have past period commission adjustments happen. There will be transactions that update, sales credit, cancellation etc. This shouldn’t mean you have to re-open that commission period though.

What you want to be able to do is make adjustments to past periods without affecting your current commission cycle.

This will require having a policy in place that outlines when you need to open a past period and when you can simply make an adjustment for the difference.

1. You Shouldn’t Open Past Commission Periods 

Let’s say you closed out your commission period for the month of March. Your sellers got paid their commissions in April. In the month of May you find out that a transaction should have been split between two sellers.

Now you need to go back to March to make that change. Which could potentially impact those two sellers commission for that month. What about attainment and accelerators? Their managers? 

There are many things you will need to recalculate when you open up a closed period. And you will need to go through and figure out how much money they were actually paid and reconcile those amounts.

Opening a closed period can have far reaching impacts to many people and processes. 

That’s why you shouldn’t just open up past periods whenever something comes up. You should treat them as closed for a reason.

2. How To Handle Past Period Commission Adjustments 

Here are some best practices for managing your past period commission adjustments.

1. Have a Policy for Past Period Adjustments. ** What will trigger an adjustment. Who can approve it. How long you have to make the adjustment. Etc. 

2. Know what was originally calculated. ** Make sure you know what the original commission calculation was and what transactions you used to calculate it. Don’t overwrite that history. 

3. Be mindful of dates. There will be a date on the transaction, a date you made the adjustment and maybe even a different date that you apply that commission under your plan. Make sure you’re using the correct date for each event.

4. Find the difference. If your rules allow you to simply take the difference between what was originally paid and what they should have been paid then do that.

Say you originally paid a seller $8,000 and you found out they should have only been paid $6,500. You would owe the seller a negative $1,500.

5. Validate all impacted payees. ** Make sure you check any commission splits, attainment and accelerators, team goals and manager overrides.

6. Don’t run payroll on calculated adjustments. ** Just because you calculated an adjustment doesn’t mean you need to pay someone that amount. Especially if its a recovery. Get the proper approvals in place. 

7. Inform the seller. ** Let the seller know what happened and how much they are being adjusted by. If you need to recover money from a seller make sure your policy allows for that and you know what laws apply.

3. When Should You Open Past Commission Periods? 

There are some scenarios where you may want to open a past period. Here are some examples: 

When to open past periods 

a. You discovered an error in the commission calculation that would affect many sellers. ** You may have applied the wrong commission rate or had a calculation issue. Opening that period and fixing the problem would be better than adjusting every seller’s commission individually.

b. You didn’t apply the correct effective date. ** If you used the wrong commission plan for the transactions that occurred in that period you will need to open that period and apply the correct one.

c. You need to show that the commission period was corrected. ** Depending on your policy or laws you may be required to open the past period and show that it was fixed.

d. The commission hasn’t been paid out yet. ** If you can open the past period and recalculate the commission it may be easier than trying to adjust the difference once they’ve been paid.

Make sure to document why you are opening a past period, what you changed and have it approved. You should also know what you originally paid and what you now owe the seller.

When NOT to open past periods 

a. Transaction updates that affect one seller or a small group of sellers.

b. You can split the sales credit after the fact.

c. Cancellation / Clawback of a transaction after it was paid out.

d.  Any other scenario where you can easily find the difference and adjust in a future period.

If you can apply an adjustment to a seller’s commission for the difference you should do that and keep the past period closed.

So basically if you feel you need to fix something in the original period then open it. If you can leave the period as-is and just apply the difference to their current period then you don’t need to open it. ** 

There should not be a dollar amount that dictates whether you open a period or not. You will need to define what is considered material and what you can adjust.

4. Have a Process in Place 

When you have a past period commission adjustment happen you should follow the steps outlined above. Whether you open the past period or not. You should always have a process that you can follow to make sure everything is done correctly.

Once you have that process in place you can look at your adjustments and see if there is anything you can improve to minimize them. Maybe you are consistently miscrediting sales to sellers or territories are wrong. Fix the problem instead of adjusting every time it happens.

With the right Sales Compensation software you can automate many of these steps. Making it easier for your team to manage commission adjustments.

So the next time you are faced with a commission adjustment think about if you need to open that period or if you can just adjust the difference.

Are you able to make an adjustment to your sellers commission without having to open the past period? If not you have a bigger problem. 

You need to figure out why you’re opening past periods and create a policy around it.