What is the difference between a Non-Recoverable Draw and a Salary?
The primary difference is a non-recoverable draw can eliminate a potential fairness concern that can arise when a company uses a salary + commission compensation plan. The best way to explain this fairness concern is by reviewing an example. Sample Company has an annual revenue target for each salesperson of $1,000,000. Management is willing to pay 10% of this revenue ($100,000) as total annual salesperson compensation. Annual base salaries range from $40,000 to $60,000 based upon salesperson experience and need. The balance of each salesperson’s compensation is commission. If a salesperson receives a base salary of $60,000, their target annual commission compensation is $40,000. Assume that commissions are calculated by applying a multiplier against each dollar of revenue that the salesperson produces. To calculate the multiplier, divide the target commission compensation ($40,000) by the revenue target ($1,000,000). This produces a multiplier of .04. If a salesperson receives a base
