What commission means
Commission ties payment to outcome.
Instead of a fixed fee, the person is paid a percentage of the value of a transaction they brought about: a sale, a letting, an introduction, a raise, a placement.
It aligns interests, which is why it is used for sales staff, agents, brokers and introducers. It also creates a specific dispute, which is about the trigger rather than the rate.
The trigger is the event that makes the commission payable. It can be introduction, meaning the agent is paid for bringing the parties together whatever happens next. It can be agreement, meaning payment falls due when terms are agreed. Or it can be completion, meaning nothing is payable until the transaction actually closes and the money moves.
Those three produce entirely different outcomes for the same work, and where nobody wrote down which applies, both sides remember it differently.
How it is used
A commission clause should answer five questions.
The rate, and what it is calculated on: gross transaction value, net of what deductions, or profit.
The trigger: introduction, agreement or completion, stated in terms.
When it is paid: on the trigger, or when the principal actually receives the money.
What happens after the relationship ends: whether commission is payable on transactions that were introduced before termination but completed afterwards, and for how long.
And clawback: whether commission already paid must be returned if the transaction is cancelled, the customer refunded, or the sale unwinds.
That post termination question is the one that produces the most litigation. A salesperson who spent four months developing an account that closes three weeks after they resign has a strong sense of entitlement and, without a clause, no clear right.
Withholding tax also applies to commission payments, and the agreement should state whether the figure is gross or net of it.
Key features
- Payment calculated as a share of transaction value
- The trigger event determines when it is earned
- Common triggers are introduction, agreement and completion
- Post termination entitlement should be expressly addressed
- Clawback provisions deal with cancelled or refunded transactions
- Withholding tax applies and the agreement should say who bears it
How this works in Nigeria
Estate agency is where Nigerian commission disputes concentrate, and the pattern is consistent.
An agent introduces a buyer or a tenant. The parties then deal directly. The transaction completes. The agent claims commission and the owner refuses, on the basis that the agent did not conclude anything.
Without a written agency agreement stating the trigger, that is an argument with no clear answer, and Nigerian courts have addressed agency commission claims on the facts of what was agreed and what the agent actually did.
The fix is one sentence in an agency agreement: commission is earned on introduction of a party who subsequently completes, payable on completion. Both sides know where they stand.
The second Nigerian pattern is the informal introducer. Somebody introduces a business opportunity, nothing is written, the deal happens, and the introducer expects a share. Where nothing was agreed, there may be a claim for the reasonable value of services rendered, but it is a much weaker position than a signed one page introducer agreement would have given.
For employed salespeople, the commission scheme should be documented and should state what happens on resignation, on dismissal and on transactions in the pipeline. A scheme communicated verbally and applied differently to different people is a grievance and a claim waiting to happen.
Commission vs salary vs bonus vs finder fee
Four ways people are paid for producing results, with different certainty.
Salary is fixed and payable regardless of output. It is the employee's baseline and it does not depend on performance.
Commission is a share of transactions the person brought about. It is variable, tied to a defined trigger, and it is contractual, so entitlement depends on what was agreed.
A bonus is a payment for performance over a period. It may be contractual or discretionary, and the distinction matters enormously: a discretionary bonus can be withheld, a contractual one cannot.
A finder's fee is a one off payment for an introduction, common in transactions and financing. It is the same concept as commission with a narrower trigger, and it should be documented before the introduction rather than after.
In each case the document should say what triggers payment, when it is paid, and what happens if the relationship ends first.
Limits and risks
Commission depends on the principal completing transactions, which the agent does not control. An agent who did excellent work on a deal the principal abandoned may earn nothing.
Calculation disputes are also common where the base is net of unspecified deductions, and an agent should insist that deductions are listed.
Enforcement is difficult without documentation. An introducer with no agreement is arguing about an understanding.
And clawback can operate harshly. A salesperson who received commission on a large order that is later cancelled may face a deduction from future earnings that they had already spent.
Worth knowing
Write down the trigger before you do the work: introduction, agreement or completion. Nigerian commission disputes are almost never about the percentage, and one sentence agreed at the start settles the argument that otherwise runs for a year.
Questions people ask
When is commission earned?
On whatever trigger the agreement states: introduction of a party, agreement of terms, or completion of the transaction. Where nothing was agreed, this is the question that produces the dispute.
What is the most common commission dispute?
An agent introduces a party, the principal deals with them directly and the transaction completes, and the principal refuses commission on the basis that the agent did not conclude it. A written trigger prevents it.
Am I owed commission on deals that close after I leave?
Only if the agreement says so. Post termination commission on transactions introduced before departure should be expressly addressed, including for how long it applies.
What is clawback?
A provision requiring commission already paid to be returned where the transaction is cancelled, refunded or unwinds. It should be stated clearly, because it can operate harshly on money already spent.
Is commission subject to withholding tax?
Yes, commission payments attract withholding tax in Nigeria. The agreement should state whether the figure quoted is gross or net of it and who bears the deduction.
What is the difference between commission and a bonus?
Commission is a share of transactions you brought about, tied to a defined trigger. A bonus is a payment for performance over a period, and whether it is contractual or discretionary determines whether it can be withheld.