Practice Director Compensation Agreement
Revision Date: [i]____________
This document describes the agreement between [ii]________________________________ (“Company”) and [iii]____________________________________ (“Payee”) regarding terms related to compensation.
Company and Payee enter into this agreement whereby Payee provides consulting services to the Company and customers of company, in return for compensation specified in this agreement.
This agreement covers the period starting from [iv]_______________ and ends on ________________.
All commissions will be calculated and paid once every month, for the preceding month. Commissions will be calculated and paid out as part of the next payroll cycle, following the month for which commissions are calculated.
[v]Payee is due a base salary of [vi]______________, payable every [vii]_________________ at an hourly rate of ______________.
Targeted variable compensation for the full year is[viii] ______________. The compensation is not capped.
Payee will be paid for all travel and lodging expenses related to consulting activities. Auto travel will be reimbursed at the current federal reimbursement rate ( Currently 0.37 cents per mile).
Payees will be required to maintain a cell phone as part of conducting sales business. Sales Rep will be provided an allowance of $50 per month for cell phone usage.
Client entertainment expenses will be reimbursed as following:
Meals: Reimbursable with receipts
Special Events: Must be pre-approved. Reimbursable with receipts.
Expenses will be reimbursed within 30 days of being presented with the receipts and a completed expense reimbursement form.
[ix] Gross Profit Commission
Payee has an Annual Gross Profit Quota. The annual quota is $600,000 (Six Hundred Thousand Dollars).
Gross Profit Credits:
Payee gets credit for any named customer assigned to Payee. Customers assigned to Payee will include new customers engaged by the Payee as well as any customers transferred to the Payee.
Payee gets credit for the customer’s Gross Profit when invoices are issued to the customer.[x]
Commission is calculated monthly. Calculation is based on the following data available from timesheets and invoices.
Pay Rate - This is the hourly rate paid to a consultant used by the company. This is typically the same rate for a consultant for an extended period of time.
Loaded Labor Cost – This is the hourly cost that is added to the Pay Rate to determine the total cost of a resource to the company. This cost can include taxes, administrative expenses, equipment expenses, etc.
Bill Rate - This is the rate that a customer is charged for a specific consultant. This can be different by consultant. The same consultant can also be provided at different bill rates to different customers.
Revenue - Bill Rate x Number of Hours
Gross Profit - Revenue – (Pay Rate + Loaded Labor Cost) for a set number of billable hours, usually a month’s worth.
Commission amount is calculated as a percentage of Gross Profit. Each invoice Gross Profit is cumulated to get a Year-to-date Gross Profit attainment number. This Year-to-date Gross profit is compared to the annual quota and based on the tier it falls into, the appropriate commission rate is used for the calculation of commission.
YTD Gross Profit
Attainment Commission %
0 - 80% 20%
81% to 100% 25%
101% to 150% 35%
151% and above 50%
Timesheet billings for various projects and consultants are as following:
Customer Consultant Hrs Cost Bill Rate Revenue GP Acct Mgr
AAA 1 150 $80 $200 $30,000 $18,000 A
AAA 2 150 $100 $200 $30,000 $15,000 A
BBB 3 200 $100 $200 $40,000 $6,000 B
In this case, commissions for Account Manager A are calculated as follows.
GP / Quota = Attainment
($18,000 + $15,000) / $600,000 = 5.5%
5.5% Quota falls in the first tier of calculations yielding a commission rate of 20%.
G.P x Commission Rate. = Commission
$33,000 x 20% = $6,600
[xi] Net Income Commission
There is no quota for this incentive.
Payee gets credit for the financial performance of his/her practice.
Commission is calculated and paid Monthly. Calculation is based on the following data available from the Company’s financial statements for the Payee’s practice area.
Gross Income - This is the revenue generated by the practice area.
Payroll Expenses - This is the expenses of staff.
G& A Expense - This is the General & Administrative expense for the area.
Other Expenses - This is the summary of other applicable expenses
Net Income is calculated as follows:
Net Income = Gross Income – (Payroll Expense + G&A Expense + other Expenses)
Commission amount is calculated as a percentage of Net Income. Commission rate is a flat commission rate of 1%.
Termination of Employment
On voluntary or involuntary termination of Payee employment with the Company, commissions will be paid on transactions dated prior to the termination date only. Any amounts owed to the Payee will be according to employment regulations after withholding taxes and other dues.
- Payee agrees to follow all Federal and Local laws while engaged in providing services to the Company during the period of this agreement.
- Payee shall not engage in any other employment during the term of this agreement. Company reserves the right to require Payee to terminate any such other employment at Company’s sole discretion.
- Payee shall use the most ethical practices while engaging in any sales activity.
- Payee agrees to protect all confidential material including prospect data, sales data, and client information belonging to the Company and shall take all reasonable care in making sure that such confidential material is not disbursed to anyone outside the company.
- This entire agreement shall be governed by the laws of the State of ___________.
i Any part of this document can be changed or overridden based on your needs.
ii This date will give us information as to when this agreement was written and distinguish it from similar other agreements.
iii Fill out the company name here.
iv Fill out the payee’s full name here.
v Enter the start and end date for the sales commission plan effective period. Most companies use the calendar or fiscal year start and end dates for these values. Some companies may not have an end date specified.
vi Alternatively you can remove this section or phrase it such as “Base Salary is specified in a separate employment agreement.
vii Amount of base every payable period.
viii Weekly, Bi-weekly, Twice-monthly, Monthly, etc
ix If there is a targeted compensation for the full year, it can be entered here. Alternatively, this whole section can be removed.
x This incentive encourages higher levels of gross profit with higher commissions at higher levels.
xi Alternatively commission can be due on payment or other events.
xii This incentive encourages higher levels of gross profit with higher commissions at higher levels.