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What comission-based
compensation means

In recent years, the Nordic it-consulting market has changed rapidly.

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Fixed price and scope projects have become more Agile friendly and value driven. Nowadays, culture and employee experience are the cornerstone in any modern it-company. However, companies’ compensation model has remained quite unchanged.

The current model

Compensation can be direct, indirect and non-monetary. Direct compensation includes money paid to employees as cash, such as hourly wages, salaries, bonuses and commission. Indirect compensation’s financial value can be also calculated — but is not a form of cash. Indirect compensations are for example insurances, vouchers, housing and transport benefits.

Non-monetary compensation may not be measured in euros. Non-monetary compensation includes time off, flexible working hours, coaching and training opportunities. These benefits are valuable to employees and can make a huge difference in the workplace culture and overall job attraction.

The most common compensation model in Nordic it-companies is a monthly salary added with a wide range of indirect and non-monetary compensations. The salary is paid to an employee during the applicable month and it is fixed. In addition to this, extensive indirect and non-monetary compensations help to get and retain employees.

There are many reasons why it-organisations favour this approach. Monthly salary makes budgeting and forecasting simpler, because salaries are known in advance. In addition to this, vacation days are easy to calculate, and work schedules can be flexible. For employees, monthly salary provides reliability and predictability. If a monthly salary model is well-known and liked, why fix something that isn't broken?

The new approach

Rebase Consulting is a recently established it-company. Instead of a typical monthly salary model, at Rebase, the compensation model is commission based. Additionally, indirect compensations are limited.

In practice, an employee working for Rebase Consulting receives 50% of the hourly rate billed from the customer. In other words, 50% is the employee gross salary earning. The other 50% goes to fixed costs, such as mandatory social insurance contributions, and company’s profit.

In this model, neither Rebase nor a Rebase employee know what the next month’s salary will be. The employee salary depends on what the utilisation and hourly rates are. For example, if the employee’s utilisation is 100% and the hourly rate is 100 euros in August 2020, the gross salary is around 7900 euros. Contrarily, if the employee’s utilisation is 60% and the hourly rate is 80 euros in August 2020, the gross salary is around 3800 euros.

This means that business risks are shared between Rebase and its employees. If business goes well, an employee benefits from the model through the higher monthly salary. If Rebase is failing to find or retain projects and the utilisation drops, the employee’s salary is also lower.

Culture follows structure

A commission-based compensation model will impact the company’s structure and culture. Such a company is simple and unnecessary managers, processes and reports are absent. Internal meetings and events will stay at a minimum level, because it has a straight impact on all attendees’ compensation. All but mandatory expenses will be cut, and wage negotiations are not needed.

A commission-based compensation model attracts people who are more risk tolerant. In addition, these people are interested in creating something bigger, more impactful and leaving a legacy. A commission-based company also requires more activeness and independency from the employee’s side than a typical consulting company.

The new era

Sometimes when creating something new, something must first be removed. Commission-based companies will certainly shake the Nordic it-companies market in next years. The winners are employees who have a wider range of compensation models to choose from based on their situation, career-path and lifestyle.

References