How a Draw Compensation Structure Works
Commission based, or heavily incentivized positions can be extremely rewarding for sales employees. This is especially true if commissions are uncapped, the percentage is a substantial number, or if the average sale size is large enough. A commission largely based role allows those working at a sales capacity the opportunity to earn a much higher salary than they otherwise would, but it is also at the employee's discretion.
Beginning a new sales position can be challenging, however, as there is almost always a ‘ramp-up period’. This typically lasts between three to six months, although that can vary depending on the sales cycle. Draw programs are usually implemented to help the sales candidate through this initial ramp-up period. Sales employees are generally incentive driven, so this tends to work well.
There are two types of draws: Recoverable and Non-Recoverable.
A recoverable draw is comparable to a zero interest loan that gets paid back out of the employee’s commissions. With this type of draw structure it is possible for the employee to be paid more than the draw if they make more than the amount in commissions, but an employee may also have to pay the company the difference if they don’t make the draw equivalent in commissions. Some companies form escrow accounts to avoid issues with this.
A non-recoverable draw is not retrieved from future earnings and is not cumulative.
Both recoverable and non-recoverable draw structures can provide an ideal environment for a sales employee to thrive from the beginning. When a candidate has any questions about the draw structure, it is always advisable to ask for or request a copy of any information the company may have regarding their draw payment process.