The History of Sales Commission

By Victor Hoang · Updated Oct 24, 2026

Around 1750 BCE, Babylon's laws covered a merchant who entrusted money to an agent. The agent went off to trade. The merchant stayed behind and could not watch him. So the law demanded written receipts.

Paying a seller a share of what the seller brings in is one of the oldest ideas in trade. But the commission plan most teams run today took shape in the 1880s and 1890s at the National Cash Register Company (NCR) in Dayton, Ohio. There, John H. Patterson assigned each salesman a guaranteed territory and paid commission on all sales in it, then added a formal quota for each district in 1900. The throughline is a bargain that keeps being rewritten: the company shares the upside, and the seller carries some of the risk.

Nearly every era in this story is a new answer to that old puzzle, and each answer created a new way for people to game it. For the wider arc of selling, see the history of sales.

Timeline at a Glance

Agents and Partners (c. 1750 BCE-1500s)

Merchants learn to share the result with the person who travels

Start in Babylon. The Louvre dates the stele of Hammurabi to around 1750 BCE and describes its 282 judgements as grouped by family, property, trade and labour. Several of them concern the merchant and his agent. In the Yale Avalon Project's translation, one law begins "If a merchant entrust money to an agent (broker) for some investment", and the rules that follow cover what happens when the agent loses the money, when enemies seize the goods, and when either side denies a receipt. The agent must give a receipt for what he is handed. A merchant who denies receiving what the agent returned owes the agent six times the sum.

The same text is blunt about risk. If the agent suffers a loss where he travels, he must make good the capital to the merchant. That is a different bargain from a modern commission, where the seller risks his time and not the company's money. And the laws do not describe the agent earning a percentage of the sale. They regulate trust, receipts and liability, which is the groundwork any commission arrangement needs. In the same spirit, the merchants of Kaneš, in what is now Turkey, left more than 23,000 tablets from about seventy archives in the early second millennium BCE, recording loans and the costs of caravans. Long-distance trade ran on agents, credit and written records long before anyone priced a sale as a percentage.

The first clearly documented profit share arrives in medieval Genoa. A University of Oxford business law blog describes the commenda, a contract in which a land-based investor entrusted capital or goods to a travelling partner who shipped and sold them overseas. In a 1156 voyage, Ansaldo Baialardo received capital from Ingo da Volta, and profits followed Genoese maritime custom: three quarters to the investor and one quarter to the traveler, after the capital was returned. The same post notes that, in the unilateral form, the traveler did not share in losses, and that one scholar traces the commenda's origins to the Arabian Peninsula before it spread west.

Keep precursor and concept apart. The commenda is a partnership, not a sales job. The traveler was a co-venturer paid out of profit, not an employee paid on revenue, and nobody called his share a commission. What it shows is that splitting the result with the person who does the selling is at least nine centuries old in documented form.

For teams today: the oldest question in sales pay is who carries the risk. A share of profit shifts risk to the seller, so the more of it you hand over, the more control and the more upside the seller expects in return.

The Factor and the Drummer (1800s-1883)

Commission becomes the going rate for a middleman's work

By the nineteenth century, selling on commission was an ordinary business. In the American South, factors, also called commission merchants, sold planters' cotton and other crops, arranged buyers, transport, insurance and storage, and earned a commission for the service. The NCpedia entry, by David A. Norris, says they operated in North Carolina towns during much of the nineteenth and early twentieth centuries, and that their business declined after the Civil War. This was a merchant earning a fee on goods that belonged to someone else, not an employee on a company payroll, but the logic was the same: the middleman is paid when the goods move.

Meanwhile a different figure was crossing the country: the traveling salesman, who sold a manufacturer's or wholesaler's goods to shopkeepers. His story, and his reputation, are told in the history of traveling salesmen. How drummers were paid, and what share they kept, varied from firm to firm.

What the era produced was a habit of mind: paying the middleman when the goods move. The next step was to manage, measure and protect the seller while still paying him that way.

For teams today: a pure commission sells hard and manages itself, but it gives a manager little claim on how the seller spends his day. Every step toward more management has meant giving something up on the pay side.

The Patterson Years (1884-1913)

A cash-register maker pairs a share of sales with a protected patch and a number

The scene is Dayton, Ohio. Patterson acquired the rights to the cash register in 1884, and by the profile's account he went on to give each salesman a guaranteed territory, then pay commission on all sales in it. The point was to let salesmen plan the development of their territories instead of scattering their effort. In 1900 each sales district received a formal quota, and meeting it earned an invitation to the sales convention. The same profile says Patterson "paid well all down the line and dizzyingly at the top", and records that one executive reported total compensation of $50,000 in 1921.

Selling Power's profile adds the logic. Patterson's protected territory was created to attract and keep the best salesmen, and in return agents had to meet their quotas, which the article calls "the first effort to obtain measurable results in selling". An HBS Working Knowledge feature on historian Walter A. Friedman's work says Patterson tested different methods of compensation and demanded monthly quotas, and Friedman's own Business History Review article on NCR's sales strategy says Patterson's method ran from the calculation of quotas and commission rates to the motivation of discouraged salesmen.

This is the turning point. Before NCR, commission paid for a sale. At NCR it paid for a sale inside a defined territory, against a number the company set. That created the next problem too: once a target exists, people argue about how it was set. The full story of the quota and its territory sits in the history of sales quotas and territories, and the training side of the NCR machine is in the NCR sales training story. For the bigger claim that modern selling begins here, read who invented modern sales.

For teams today: commission alone tells a seller to sell. A territory tells him where, and a quota tells him how much counts as success. If one of the three is missing or vague, the other two get blamed.

The Commission-Only Crews (1900s-1950s)

Door-to-door firms run on pay that only arrives with a sale

While NCR built a managed sales force, other companies took the opposite course. Fuller Brush, based in Hartford, Connecticut, recruited distributors who received no base salary. A 1909 advertisement in the Syracuse Post-Standard for sales distributors drew 260 dealers, the company's archival documents record that seven of ten recruits failed in their first three months, and by 1956 it had 7,000 full-time distributors. They walked an average of six miles a day and sold to about one of every five homes they visited.

That model survives on volume and selection. A commission-only plan costs the company nothing on the days the seller fails, so the company can recruit widely and let the market sort the rest. The seller bears the whole risk, which is why turnover is high. The law drew a line around this kind of work. Under the US outside sales exemption, a person whose primary duty is making sales and who works customarily and regularly away from the employer's place of business is exempt from minimum wage and overtime rules, and the salary requirements do not apply. That exemption covers the commission-only canvasser's kind of work. The channel's own story is in the history of door-to-door sales.

It also left a warning. In its 2021 settlement with Vivint, the FTC described a company that used door-to-door sales representatives working on a commission-only basis. Vivint agreed to pay $20 million on April 29, 2021, and the FTC alleged that some reps used a "white paging" process to borrow a stranger's credit history to qualify a customer. A plan that pays only on the close rewards the close, however it is achieved.

For teams today: if sellers are paid only on the sale, make sure the sale is one you want. The house-to-house era shows both the reach and the cost of a plan with no floor.

The Theory Years (1964-1990s)

Economists and marketing scientists ask what the right plan is

For decades the commission plan was an invention of managers. In 1964 it became a research subject. In the Journal of Marketing Research, John U. Farley showed that a plan paying equal commission rates on the gross margins of the products in a salesman's line was optimal in his model: a salesman maximizing his own commissions would also be maximizing his contribution to company profit. His argument was that paying on margin, not on revenue, aligns the two. The paper also suggested the plan might simplify the formal quota and control systems then needed under other compensation programs.

The next landmark came in 1985. Basu, Lal, Srinivasan and Staelin modeled pay as an agency problem in Marketing Science, where sales depend on both effort and an uncertain environment. They found that the best plan is convex in sales when the salesperson's risk tolerance rises quickly with income, and concave when it stays constant, and that firms lean more on fixed salary when uncertainty is higher, production costs are higher or the salesperson has better outside options. That helped explain why firms use pure salary, pure commission or a mix. Four years later Anne Coughlan and Subrata Sen reviewed this work for practitioners, linking its results to real compensation practice.

In 1996, Jagmohan Raju and V. Srinivasan asked whether the simple plan most firms used was good enough. They compared quota-based pay, where a fixed salary is supplemented by commission on sales above a quota, with the optimal curved plans. In their numerical experiments the shortfall was merely about 1%, and they argued that quota plans were simpler to run because a change in territory conditions could be handled by adjusting only the quota. That is a model result, not a field study, but it explains why salary plus commission above a quota became the standard shape.

The theory gave managers a vocabulary, and it left a practical lesson: no formula fixes a poorly defined target. For how those plan types work in practice, see sales compensation plans.

For teams today: the research is consistent on one point. The right mix of salary and commission depends on how uncertain the selling environment is and how much the seller can influence the result. Start there, not with a template.

The Accelerator Era (1990s-present)

Rising rates reward the big quarter, invite gaming, and draw regulators in

As plans grew more sophisticated, they became more nonlinear. Paul Oyer noted in 1998 that salesperson and executive compensation contracts typically specify a nonlinear relationship between firm revenues and pay, which gives these agents an incentive to manipulate prices, influence the timing of customer purchases and vary effort over the fiscal year. In the data, manufacturing firms' sales were higher at the end of the fiscal year and lower at the beginning than in the middle.

Ian Larkin's study of a leading enterprise software vendor showed the mechanism at close range. In his paper in the Journal of Labor Economics, salespeople were adept at gaming the timing of deals to take advantage of the vendor's accelerating commission scheme, and agreed to significantly lower pricing in quarters in which they had a financial incentive to close, a mispricing the abstract says cost the vendor 6% to 8% of revenue. An accelerator, a higher commission rate once the seller passes a threshold, is meant to reward exceptional performance. The same device also rewards pulling a deal into the quarter that pays the most. Two other channels in this series grew up under the same quarterly pay plans: the history of inside sales and the history of account-based selling.

Two outside forces then shaped the design. California required, from January 1, 2013, that a contract of employment involving commissions be in writing and set forth the method by which the commissions are computed and paid, with the employer obtaining a signed receipt from each employee. And accounting changed how companies treat the cost. FASB's ASU 2014-09, issued in May 2014, says an entity should recognize as an asset the incremental costs of obtaining a contract that it expects to recover, with a practical expedient to expense those costs when the amortization period is one year or less.

Newer plans also try to pay for what happens after the sale. The thinking behind them is laid out in sales commission on retention, which looks at what happens when commission plans reward acquisition and ignore the renewal that follows. And for field teams that still work on commission, commission design for door-to-door teams shows how modern plans adapt.

The Reckoning (2016-present)

From 2016, regulators began to treat the incentive plan itself as a source of risk.

On September 8, 2016, the Consumer Financial Protection Bureau announced a $100 million penalty against Wells Fargo. The bureau's release said the bank's own analysis found more than two million deposit and credit card accounts that may not have been authorized by consumers, about 1.5 million deposit accounts and roughly 565,000 credit card accounts. It said employees opened them to meet sales goals and earn pay, that compensation incentive programs encouraged this, and that the bank did not monitor them closely enough. The bank also agreed to pay $35 million to the Office of the Comptroller of the Currency and $50 million to the City and County of Los Angeles. CFPB Director Richard Cordray said that financial incentive programs, "if not monitored carefully, carry serious risks."

Wells Fargo was a bank and not a software company, but the lesson travels. The question changed from "does the plan motivate?" to "what exactly does the plan motivate, and who is checking?" The two Larkin-style distortions from the accelerator era, discounts at quarter end and deals pulled forward, are expensive. The Wells Fargo kind, behavior that harms customers, is expensive in a different way, with fines, remediation and lost trust.

The history gives no neat ending. What has changed is the scrutiny. Plans are written down, audited, tied to revenue accounting and watched by regulators.

For teams today: every accelerator has a cliff, and sellers will find it. Look at where your deals cluster, and treat a comp plan like a control system. Write the rules down, test them against the worst behavior they could reward, and review them on a schedule.

Key People

Key Facts

• Hammurabi's judgements run to 282 entries, grouped by topics including trade and labour, and the Babylonian agent laws cover receipts, losses and denied debts.
• In a 1156 Genoese voyage, profits went three quarters to the investor and one quarter to the traveler after capital was returned.
• NCR's district quotas date to 1900, alongside commission on all sales in a guaranteed territory.
• A 1996 analysis found quota-based plans fell short of optimal curved plans by about 1% in its experiments.
• One enterprise software study put the cost of accelerator gaming at 6% to 8% of revenue.
• The CFPB's 2016 Wells Fargo penalty was $100 million, with the bank's own review counting more than two million possibly unauthorized accounts.

The Pattern Behind the History

Our synthesis, not published research: the story of sales commission repeats five moves.

• Sharing the result moves risk. From the commenda's one-quarter share to a modern accelerator, the more of the result the seller keeps, the more risk he carries and the more control he expects.
• Every payout rule becomes a target. Fiscal-year-end spikes, quarter-end discounts and borrowed credit histories all came from people optimizing what the plan paid for.
• The target arrived after the commission. Commission is ancient. The quota was bolted on at NCR, and the two together made the plan manageable.
• Theory follows practice by decades. The research on optimal plans started in 1964, decades after NCR's system was working.
• Outside rules arrive after the damage. Written-contract laws, revenue-accounting rules and regulators' attention came after plans had already produced problems.

What It Teaches Teams Today

• Decide who carries the risk. The more uncertain the selling environment, the more the research favors fixed pay. Match the mix to the job, not to a template.
• Pair pay with a territory and a target. NCR's innovation was the bundle. Check that your plan has all three.
• Pay on what you want, not only on revenue. Farley's margin-based plan and the retention-linked plans in sales commission on retention both point at the same fix.
• Look for the cliffs. If deals bunch at a threshold or at quarter end, the plan is writing the calendar.
• Write it down. Even where the law does not require it, a written plan with a signed receipt prevents disputes later.
• Audit the worst-case behavior. Ask what the least scrupulous seller could do to hit the number, and close that door.

For the wider story, return to the history of sales.