Most commission disputes in Gulf trading companies are not about the rate. They are about the rules nobody wrote down: whether a returned order still counts, what happens when a customer pays after six months, and who gets credit when two people worked on the same deal.
This guide covers what to pay commission on, which plan structures work, and a worked monthly calculation for a Dubai distributor. It then covers returns and clawbacks, how commission fits with employment terms and IFRS 15, a checklist for the written plan, and an FAQ.
What should commission be paid on?
The base decides behaviour. Salespeople are good at doing what the plan pays for, so make sure the plan pays for what the company needs.
| Commission base | Rewards | Risk | Best for |
|---|---|---|---|
| Revenue invoiced | Volume | Discounting to close deals; selling to customers who do not pay | Simple, fixed-price products with little discount freedom |
| Gross margin invoiced | Profitable selling | Needs reliable product costs; still pays on unpaid invoices | Distributors and traders where salespeople set price or discount |
| Gross margin collected | Profitable selling to customers who pay | Commission arrives later, which salespeople dislike at first | Credit sales, especially with long payment terms |
| New customers or new products | Growth | Can be gamed by splitting existing accounts | A temporary add-on, not the whole plan |
| Team or branch result | Cooperation | Weak link between individual effort and pay | Retail branches and showrooms |
For most Gulf distributors, gross margin collected is the best base. It pays for the two things salespeople influence most, price and customer quality, and it means the company never pays commission on money it has not received.
If product costs in the system are unreliable, fix them before moving to a margin plan. A plan built on wrong costs will be argued about every month, and the arguments will be fair. Use landed cost, including freight, duty and clearing, for imported items.
Which commission structures are fair and simple?
| Element | How it works | Use it when |
|---|---|---|
| Flat rate | One percentage on the whole base | You want maximum simplicity |
| Threshold | No commission until a minimum, such as 70% of target, is reached | Basic salary already covers a base level of performance |
| Accelerator | A higher rate on results above target | You want to reward the best performers more |
| Cap | A maximum commission per month or year | Large one-off deals could produce unearned windfalls; use with care |
| Split | Agreed shares when two people work on one account | Key account and field sales overlap |
Keep to three elements at most. A plan that needs a spreadsheet to explain is a plan nobody trusts. A good test: can a salesperson estimate this month's commission on the back of a receipt?
Set targets from data, not hope. A target that most of the team reaches about two months in three keeps people motivated; one that nobody reaches is just a pay cut. Review targets yearly and when territories change, not in the middle of a month that is going well.
How do you calculate commission? A worked example
A Dubai building materials distributor pays its salespeople a basic salary and allowances, plus commission on gross margin collected. The plan, in AED:
- Monthly target: AED 60,000 of gross margin collected
- Threshold: no commission below 70% of target (AED 42,000)
- 8% of gross margin up to target
- 12% of gross margin above target
- Cap: AED 12,000 a month, reached at AED 120,000 of margin
- Margin on goods returned is deducted in the month the return is credited
Gross margin is net invoice value before VAT, less landed cost. An invoice counts when the customer pays it; part payments count in proportion.
Rania's October calculation:
| Item | AED |
|---|---|
| Gross margin on invoices paid in October | 74,500 |
| Less margin on returns credited in October | (3,200) |
| Commissionable margin | 71,300 |
| Commission on first 60,000 at 8% | 4,800 |
| Commission on 11,300 above target at 12% | 1,356 |
| October commission | 6,156 |
Why the margin base matters. The company previously paid 1% of revenue invoiced. Compare two salespeople on the old and new plans in the same month:
| Salesperson A | Salesperson B | |
|---|---|---|
| Revenue invoiced and collected | 600,000 | 400,000 |
| Gross margin % | 9% | 17% |
| Gross margin | 54,000 | 68,000 |
| Old plan: 1% of revenue | 6,000 | 4,000 |
| New plan: margin collected | 4,320 | 5,760 |
Under the old plan, the salesperson who discounted hardest earned AED 2,000 more while bringing in AED 14,000 less margin. Under the new plan, B earns more, and A can see exactly why.
VAT does not enter the calculation. The 5% VAT on the invoices is collected for the FTA, so commission is calculated on values before VAT, and receipts are split between VAT and the invoice net amount pro rata.
How should returns, bad debts and clawbacks work?
Decide three rules before the plan starts, and put them in writing.
When commission is earned. On invoice, on delivery or on payment. Paying on collected margin avoids most clawbacks, because nothing is paid until the customer pays.
What happens to returns. Deduct the margin of returned goods in the month the credit note is issued, against the same salesperson, even if the original sale was in an earlier month.
What happens to unpaid invoices. If you pay on invoice, set a cut-off, such as 120 days overdue, after which the margin is deducted from the next commission. Make the deduction from future commission rather than asking for money back.
What do employment terms and accounting mean for commission?
Employment terms. Commission can affect other employee entitlements, so agree the plan's wording with HR before rollout.
IFRS 15. A sales commission is an incremental cost of obtaining a contract. Where you expect to recover it, it is recognised as an asset and expensed over the contract period. As a practical expedient, it can be expensed immediately when that period is one year or less. For most distributors, commission is simply an expense; for multi-year service or maintenance contracts, ask your auditor.
What should a written commission plan include?
What does HYP see at sales teams?
At distributors and trading companies across the Gulf, our implementation team often finds commission calculated in a spreadsheet by one person in finance, from a sales report exported at month end. Returns, credit notes and late payments are adjusted by hand, and salespeople receive a single figure with no breakdown. Every month some of them dispute it, and the finance person spends days rebuilding the numbers.
The second common pattern is a revenue plan in a business where salespeople control discount. Revenue rises, margin falls, and nobody links the two until year end.
The companies that run commission well publish the plan in writing, calculate it from system data with the returns and payment rules built in, and let each salesperson see their own calculation during the month, invoice by invoice. Disputes drop because the numbers are visible before payday.
In HYP, sales targets, forecasts and commission rules sit with the sales data, so commission can be calculated from invoices, payments and returns, and each salesperson can see their progress against target during the month.
Related reading: Sales Profitability by Customer, Product and Salesperson: What to Measure, and Customer Price Lists and Discounts: How to Grow Sales Without Losing Margin.