A commission is a fee or remuneration paid in return for services rendered. Commission is often calculated as a percentage of the total transaction; a commission can be separate and in addition to fixed wages, or it can be the sole form of compensation, known as straight commission.
It is a useful method for resolving the principal-agent problem by incentivizing employees to expend maximum effort on behalf of their employer. However, commission-based transactions may also create conflicts of interest, with unethical agents encouraging clients to enter into unnecessary or fraudulent transactions.
[Last updated in May of 2022 by the Wex Definitions Team]