There is one reason for paying commission on the gross. It is a WHOLE LOT simpler to calculate. It is even simpler to verify. A company I have dealings with is dealing with this issue at the moment. An ex-employee was paid based on net. He feels that the costs were inflated to by transferring some costs from another project which was not sold on commission. This is getting be be a really bad scene and already has cost the company much more than the disputed amount in lost business as customers and venders have found out that this is happening.

As someone who has been in sales and hired salespeople, I disagree with some of the above. Salespeople are responsible for selling (which I would define as "offering products and services the company has determined it can deliver profitably"). They are NOT necessarily responsible for margin any more than they are service or product delivery. Good salespeople know their products or services, their clients, their competitors, etc. They can't be expected to know exactly how the products get made, every line of code goes into the deliverables, etc. If they do, they aren't spending enough time selling or they are not good at it. It's the responsibility of C-level execs, Product and Project Managers, and engineers to approve what's being sold and deliver on what they approve. As the front line infrantry of the corporate world, it's your job (as an exceutive or PM) to give hem rifles, tanks, supplies and combat training. Don't send them on missions and leave them out there unsupported. Give your salesperson something to profitable to sell and compensate her/him in a way that maximizes her/his sales and retention (if ongoing Acct Mgmt is part of the job). If some sales are more profitable than others (maybe less a function of quality of delivery than of the market, like hosting services), then compensating the sales person according to the margin of that line vs another is perfectly ok. What you don't want to do is punish a salesperson because of a failure of the delivery team or management - even if you don't penalize the salesperson, he or she is likely to find a company that can deliver on its promises and preserve his or her valuable reputation and relationships. If you also cut his or her commission because someone else failed to deliver, you virtually assure your top salespeople will find homes at your strongest competitors.