The Commission Effect: Framing Affects Perceived Magnitude of Identical Payouts

In addition to their salaries, employees often receive additional variable compensation (i.e., payouts) based on the sales they generate or manage. For any single transaction, the same payout (e.g., $1,000) may be earned by a relatively high commission rate and a low sales amount (e.g., 10% commission rate on a $10,000 sale) or a relatively low commission rate and a high sales amount (e.g., 1% commission rate on a $100,000 sale). In this research, we show that individuals-including those working in sales roles and familiar with commission plans-perceive the magnitude of the same payout as larger (smaller) if it stems from a high (low) commission rate and a low (high) sales amount. Across 10 experiments with 3,484 participants, we demonstrate the robustness of this "commission effect" in a varied set of employee and consumer contexts, and we identify behavioral consequences of this bias. We also provide evidence that the effect occurs because commission rates are expressed in percentages and are therefore relatively more evaluable than sales amounts. Public Significance Statement The same monetary amount (e.g., $1,000) can be derived from a high percentage of a low total amount (e.g., 10% commission rate on a $10,000 sale) or from a low percentage of a high amount (e.g., 1% of $100,000). This research documents a commission effect-whereby the same monetary amount seems larger when it is a larger slice of a smaller pie-with implications for employees and consumer decision-making.