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Nonrecoverable Draw Scenario

The following scenario describes a nonrecoverable draw.

Your company uses a nonrecoverable draw to compensate new employees for the first six months of employment. The compensation for the new sales representative, Terry Smythe, might be similar to the figures shown in Table 5.

Table 5.  Nonrecoverable Draw Scenario
Month
Gross Earnings
Draw Eligible
Net Earnings
1/02
$2,750
$2,000
$2,750
2/02
$3,000
$2,000
$3,000
3/02
$1,500
$2,000
$2,000
4/02
$2,375
$2,000
$2,375
5/02
$3,000
$2,000
$3,000
6/02
$2,750
$2,000
$2,750

Table 5 shows that for every month except March, Smythe earns more in commissions than the draw amount. In each of these months, the company pays Smythe the full amount of compensation earned. However, during March, Smythe only earns $1,500 in commission, $500 less than the draw amount. For March, the company pays Smythe the $1,500 he earned, and an additional $500 to equal the draw amount of $2,000. Because this is a nonrecoverable draw, there is no balance carried over to the next month. Smythe does not pay back the $500 out of his future earnings.


 Siebel Incentive Compensation Administration Guide 
 Published: 18 April 2003