Overriding commission

An overriding commission is a fee paid to a supervising agent or broker for managing and overseeing the activities of sub-agents or sales agents.
By:
Updated: Jun 27, 2024

3 key takeaways:

Copy link to section
  • An overriding commission is an additional fee earned by a supervising agent or broker on top of the regular commission.
  • It is typically given for managing and supporting sub-agents or sales teams.
  • This commission incentivizes effective oversight, training, and performance management of sales teams.

What is an overriding commission?

Copy link to section

An overriding commission is a type of commission paid to a supervising agent or broker in addition to the standard commission earned on sales. This commission is provided for the role of overseeing, managing, and supporting sub-agents or sales agents who generate business. It acts as an incentive for senior agents or brokers to provide guidance, training, and support to their sales teams to achieve higher performance and sales volumes.

For example, in the insurance industry, a regional manager who oversees a team of insurance agents might receive an overriding commission based on the total sales generated by the agents under their supervision.

How does an overriding commission work?

Copy link to section
  • Hierarchy: The overriding commission is typically part of a hierarchical commission structure where senior agents or brokers manage a team of sub-agents or sales representatives.
  • Commission basis: The commission is calculated as a percentage of the total sales or revenue generated by the sub-agents. This percentage is in addition to the regular commissions earned by the sub-agents themselves.
  • Performance incentive: The structure incentivizes the supervising agent to enhance the performance of their team, ensuring they meet or exceed sales targets.

For instance, if a supervising insurance agent oversees 10 sub-agents who collectively generate $1,000,000 in premiums, the supervising agent might receive an overriding commission of 5% on the total premiums, amounting to $50,000.

Advantages of an overriding commission

Copy link to section
  • Incentivizes leadership: Encourages senior agents or brokers to effectively manage and support their teams, driving better performance.
  • Aligns interests: Aligns the interests of supervising agents with the company’s goals, fostering a collaborative and goal-oriented environment.
  • Enhances productivity: Motivates supervising agents to provide training, guidance, and support to sub-agents, improving overall sales productivity.

Disadvantages of an overriding commission

Copy link to section
  • Potential conflicts: May create conflicts of interest if the supervising agent prioritizes personal commission over the best interests of the sub-agents or clients.
  • Complexity: Can complicate the commission structure, making it more challenging to manage and track.
  • Cost: Adds an additional layer of cost to the commission structure, which can impact the overall profitability of the sales organization.

For example, if a supervising real estate broker receives an overriding commission on the sales of all agents in their office, it might lead to conflicts if the broker is more focused on volume rather than the quality of service provided to clients.

Examples of industries using overriding commissions

Copy link to section
  • Insurance: Insurance companies often use overriding commissions to compensate regional managers or senior agents who oversee the performance of field agents.
  • Real estate: Real estate brokers may receive overriding commissions for managing a team of real estate agents and helping them close deals.
  • Financial services: In sectors like investment and financial advisory, senior advisors or managers may earn overriding commissions based on the performance of their junior advisors.
Copy link to section
  • Commission structures
  • Sales management
  • Incentive compensation
  • Performance metrics
  • Sales training and development

Understanding these related topics can provide deeper insights into the mechanisms and implications of overriding commissions within various sales-driven industries.



Sources & references
Risk disclaimer
Arti
AI Financial Assistant
Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000... read more.