Sales Comp Plan: Pay Reps for the Deals You Want Them Chasing

If you're like the CEOs who call me, some of your commission goes to deals no rep made happen: orders that walked in, a customer two reps both claim. Some may go to deals you ran yourself from the first call. They tell me they have no problem closing deals, but the team can't close without them. The comp plan comes up right after.

A comp plan pays for whatever it counts. Below is how to set one up so commission follows the deals your reps make happen: the job each role is paid for, the pay mix, a quota worked back from your sales plan, the rate as plain arithmetic, and who gets credit for each deal, including the deals you close yourself.

I've had a quota on me for 27 years and never missed, most of it in leadership. I've built or rebuilt the sales organization at every company that's employed me.

What Is a Sales Comp Plan?

A sales comp plan, short for sales compensation plan, is the written agreement that says how your sales representatives earn their pay: the base salary, the variable pay on top of it, the sales quota it's measured against, and the rules for what counts. It usually runs for a year, and each rep signs it.

Most guides define a sales compensation plan by its parts. I'd define an effective sales compensation plan by the job it pays for: if it counts every order, it pays reps for orders that would have come in anyway.

The Parts of a Sales Compensation Plan

• Base salary. The fixed pay, earned whatever closes.
• Variable pay. Commission or bonuses, paid on results. Commission is a share of each deal's value; a bonus is paid for hitting a specific sales target.
• On-target earnings (OTE). Base salary plus variable pay, if the rep hits 100% of quota.
• Pay mix. How OTE splits between base and variable. A 70/30 compensation plan pays 70% of OTE as base salary and 30% as variable pay; an 80/20 compensation plan pays 80% as base.
• Sales quota. The sales target the variable pay is measured against, for a set period.
• Accelerators and decelerators. A higher commission rate above quota and a lower one below it, so a deal past quota pays more than one below it.
• Thresholds. The level below which no commission is paid. Set it at or above the revenue that renews on its own, so nobody's paid twice for a sale made in an earlier year.
• Caps. A ceiling on what a rep can earn in a period. I'd keep caps off any plan that pays for selling, unless you can't deliver more than a set amount, so the deals past the ceiling still pay the rep who wins them.
• Clawbacks. Commission paid back when a customer cancels early or never pays.
• Draw against commission. An advance on commission, usually for a new rep. A recoverable draw comes back out of later commission; a non-recoverable one doesn't.
• SPIFs. A sales performance incentive fund: a short bonus for selling one product or doing one thing, for a set period.

Types of Sales Compensation Plans

The common types of sales compensation are salary-only, commission-only, base salary plus commission, tiered commission (the rate rises past set levels of sales volume), gross margin (paid on profit, not revenue), and team or territory plans paid on a shared number. Profit sharing pays on the company's result, not a rep's own deals.

At a company under $15M, I'd put most sales reps who carry a quota on base plus commission, change the mix by the job, below, and keep a salary-only compensation plan for a role where nobody can say which deal it moved.

Sales Comp Plan vs. Sales Incentive Plan

"Incentive plan" sometimes means the whole comp plan, and sometimes only the variable part: the commission, bonuses and SPIFs, without the base salary.

Signs Your Comp Plan Is Paying for the Wrong Job

The first sign I'd look for: commission paid on deals no rep made happen. CEOs and founders describe the first four below, and the last one is mine:

• Sales reps are paid on orders that walked in. A customer gets a ten-second answer, signs up online days later, and the rep asks for commission. As one business owner put it, you pay them to fish.
• Two reps claim the same customer, and the split gets argued after the deal closes.
• Sales picks its own quota. One CEO described asking a new VP of sales to pick a quota and hearing a number lower than his annual travel budget.
• A draw keeps paying reps who aren't closing. Advances against commission run for months, and no rep comes to you to say they haven't sold anything.
• Account managers are paid like sales reps who find new business. One rate pays a renewal that came in on its own the same as a customer a rep had to win.

Deals you still help close get their own section below, with the rules for paying them.

Sales Compensation by Role: Pay Each Kind of Sale as Its Own Job

Winning new business, expanding existing customers, renewals and account management are different jobs. In my experience, pay them as one job and the comp plan ends up paying reps for the wrong one. I'd put more of a rep's pay at risk the more of the deal they find and win alone. What's common by role:

• Sales reps who find and close their own new business. 50/50 to 60/40, paid on the new revenue they close.
• Reps who close the deals marketing hands them. More base, around 70/30, because marketing did part of the finding.
• Sales development representatives (SDRs). An SDR compensation plan commonly pays on qualified meetings or opportunities an account executive accepts, not on closed revenue the SDR doesn't control.
• Account managers and renewals. 75/25 to 80/20, paid on customer retention and expansion measured separately, because one net number hides the customers you lost.
• Whoever looks after house accounts. 90/10, with a small capped bonus.
• Sales managers. A sales manager compensation plan commonly pays on the team's number. I'd give a manager no accounts of their own, so the best deals don't end up on the manager's desk.

If your whole sales team is on one plan today, I'd split it by job before changing a single rate. The complete guide to sales strategy consulting covers the four kinds of sales, and the seven other decisions that sit beside them.

Sales Comp Plan Template: What It Should Include, and Who Owns It

A sales compensation plan template should cover nine things, from who the plan covers to who signs it, so the compensation structure pays for the deals you want chased. I'd give the design to whoever runs sales, for you to approve against the sales budget you set.

1. Who the plan covers, and the job each sales role is paid for. New business, expansion, renewals, account management, SDRs, managers. One compensation plan per job.
2. On-target earnings and pay mix, by role. What each role earns at 100% of quota, how it splits between base salary and variable pay, and what the total comes to against the sales budget you set.
3. Quota, by role and period. Worked back from your sales plan, so every rep's quota adds up to the plan's number. The rep can argue it, but doesn't pick it.
4. What counts. The crediting rules: new revenue or existing customers, orders that come in without a rep, house accounts, and deals you close yourself. One rep gets all the credit for a deal unless a split was agreed before it started.
5. The commission rate. The rate at quota and the accelerator above it, worked out from quota and OTE (build step 4, below), and any threshold. Then the rate is arithmetic a rep can check.
6. When a deal counts, and when it's paid. Count a deal when you no longer want the rep working on it: at signature if deals rarely fall through, at invoice if more than about one in twenty change or cancel first, at payment if collecting is the hard part. Counting later beats clawing back commission already paid.
7. Ramp. What a new rep is paid while they learn to close on their own. With a base salary of 70% of OTE or more, I'd give no guarantee. Below that, guarantee part of the target commission, stepping down over three to six months and ending on a set date, rather than an open-ended draw.
8. SPIFs, if any. What each one pays for, and the date it ends.
9. The term and the sign-off. When the plan year starts, that whoever runs sales proposes any change or exception and you approve it, and a signature from every rep before any commission is paid.

Now read item 4 against last year's deals, and count the ones where you couldn't say who earned the commission without a conversation. Each of those needs a written rule in item 4 before next year's first deal closes.

Sales Compensation Plan Examples vs. Your Own Plan

Sales compensation plan examples are worth reading for structure. Their pay mixes, quotas and commission structures come from someone else's deal sizes, sales cycles and win rates, though. Copy the headings, look for a rule on deals you close yourself, and write one if there isn't. Then fill the numbers from your own historical sales data: last year's deals.

How to Build a Sales Comp Plan, Step by Step

To build a sales comp plan, decide who designs it, name the job each role is paid for, work the quota back from your sales plan, set on-target earnings and let the commission rate fall out, write the crediting rules, build it into your CRM, and review it after a quarter.

1. Decide who designs it. Whoever runs sales, for you to approve. In my experience, under $15M there's rarely a sales operations team for this, so it falls to them. If that's still you, read who should design it, below, first.
2. Name the job each role is paid for. Use the roles above. If a rep does two jobs, split the commission between them and say how.
3. Work the quota back from your sales plan. Say your average deal is $60,000 and one rep can close 15 deals a year. That's $900,000 in new business, so the rep's quota is $900,000. Add up every rep's quota and it should equal the number in your sales plan. How to get those numbers: Sales plan →
4. Set on-target earnings, and let the rate fall out. Set OTE from what the market pays the job. Say it's $180,000 at 50/50: $90,000 base salary and $90,000 variable. $90,000 divided by the $900,000 quota is 10%, or $6,000 on each $60,000 deal. That works when territories are close in size. If one rep's patch is more than twice another's, pay each rep a share of their own target commission by percent of quota instead. Then decide what your best rep earns in commission. A common standard is three times the target commission for the top tenth, with no cap: $270,000 here. Say your best rep closes $1.8 million, twice quota. That's $180,000 more commission divided by $900,000 more sales: 20% on everything past quota. If the arithmetic gives a rate that looks wrong, change the quota or the OTE and leave the rate to the arithmetic.
5. Write the crediting rules before the first deal closes. Who's paid on orders that come in without a rep, on a deal two reps worked, and on deals you close. Put it in the plan, not in an email after the fact.
6. Build it into your CRM. Each sales rep should see their sales quota, their closed deals and what they've earned without asking anyone, and commission should be paid from what the CRM shows. I've watched teams ignore a process that only lives in a document, and a comp plan in a spreadsheet is a commission dispute waiting for a date.
7. Run it for a quarter, then review it. Have your sales lead check it against the sales plan's assumptions: deal size, win rate, and how many deals each rep closed. Change it at the start of a quarter, and never on deals already worked.

Who Gets Paid When You Close the Deal

The rules I'd start with: if a rep found the deal and ran it until you joined, the rep is paid in full even when you close it. Deals you found and ran from the first call are house accounts, and orders no rep worked pay less or nothing.

Say half of that one rep's $900,000 only closes once you're on the call. At 10%, $45,000 of their commission is on deals you helped close. Across a sales plan of 50 deals, at $6,000 of commission each, if 25 still run through you, that's $150,000 a year.

CEOs tell me on first calls they thought they'd hired reps who could close. This is what that can cost while you're still the one closing. Some of it is the cost of handing deals over, and I'd expect it to shrink. If it's still going out the same way a year later, it's no longer a handover cost. Three written rules decide how much of that you pay.

• Deals a rep found and ran until you joined: the rep is paid, and the deal counts toward quota. You don't want a rep afraid to bring you in for help because it might cost them commission. Under this rule, it never does. Being in the deal with you is how a rep learns to close the next one, and taking commission back from a rep is news that spreads through the whole team. When you hand a deal over, pick a rep who can take it from there, and stay out of it.
• Deals you found and ran from the first call: house accounts. No rep is paid commission on them until you hand one to a rep in writing.
• Orders that come in without a rep: a lower rate or nothing. If no rep knew the order was coming, no rep persuaded anyone, so the plan says which. A rep who wants the full rate registers the deal before it closes.

Then read one number every month: of the deals that paid commission, how many closed without you on the call.

Who Should Design Your Sales Comp Plan

Whoever will run the team it pays, and answer for the number. Whoever designs it, you approve it.

You. It's right if you have the hours to set it up, explain it to every rep and settle every crediting question as it comes. Most CEOs who call me don't.

Your sales manager, or a rep you promote. Pick this when someone on your team already coaches the others and wants the job. Every great rep doesn't make a great leader, and every great leader isn't always your best rep.

A manager on the same compensation plan is designing their own pay. In Advisory, below, I'd tell you what to fix in it before you sign.

A sales compensation firm. In my experience, firms that specialize in sales compensation benchmark pay against the market and design plans, usually for companies that already have a sales leader to run them. Hire one when you have that leader, make the leader own the result, and approve it yourself.

Commission software. Sales compensation management software calculates and pays what the commission plans say. It doesn't decide what the plan pays for. Add tools only after the process works.

A full-time VP of sales. Worth it when the sales process already works, so the person you hire runs it instead of inventing it, and when you need someone in the building every day, committed for years.

In this market, at a company under $15M, that's $360,000 to $520,000 a year fully loaded, plus equity, after a search of three to six months. Fractional vs. Full-Time →

A fractional VP of sales. Right when nobody inside can run sales and you're still the one closing. A fractional VP of sales is a sales executive you bring in instead of hiring full-time. In this market, most are sold by the hours a week, at $4,000 to $15,000 a month.

Done my way, the comp plan is part of the role: designed so reps are paid for the deals you want them chasing, for you to sign off. Most of the time that means adjusting the plan you have, with your team. When it's broken, it gets redesigned. The sales compensation budget stays yours to approve.

I'm rarely the first fix a CEO has tried. Usually it's been one train wreck after another. This time it's one person: me, with no associates and no bench. Your sales team reports to me, I report to you, and your head of marketing stays my peer.

The new revenue the team closes is my number, and I take no accounts of my own, so deals don't start waiting on me instead of you. When the number misses, you hear it from me first, with the reason and what changes next month.

Since 2020, averaged across my fractional clients: three times as many leads turning into opportunities, and two to six times the pipeline.

From month one it's aimed at one of two endings: someone on your team grows into leading sales, or you hire a full-time VP of sales into a process that already works. I help write the job description and sit in on the interviews.

Mine is $5,000 to $7,000 a month, remote, month to month, with no minimum term and no notice period. That starts below the market's $6,000 to $10,000 middle, and your number is mine, no excuses: Fractional VP of Sales →

Advisory. If someone on your team can design the plan once they know where to start, you need advice, not a leader. In Advisory, I tell you what to fix, in what order and why, and your team builds it; nothing reports to me, and I answer to you. It's $3,000 to $4,000 a month, remote: Advisory →

How to Tell Your Sales Comp Plan Is Working

It's working when commission follows the deals reps found and closed, and fewer of them need you. Read these every month with whoever runs your sales team:

• Deals closed without you on the call. Take this month's count before the new plan starts.
• Where the commission went. How much of the commission went to deals reps found and ran, and how much to orders that walked in.
• Quota attainment across the sales team. I'd want about two-thirds of your reps to reach quota and a third not to. If nearly everyone does, I'd read the quotas as too low; if few do, as too high, or as a plan paying for the wrong job.
• Commission disputes that reach you. If the crediting rules are written down, this should fall toward zero.
• Credit against revenue. Add up the sales credit commission was paid on and hold it against what you booked. If it runs well past the revenue, deals are being counted twice.
• What you pay against what it brings in. Salary and commission against the new revenue those reps closed. If commission rose while new revenue fell, I'd read it as the plan paying for orders that would have come in anyway. CEOs tell me about years they worked harder and made less than the year before. If you've had one, pull this number for that year first.

Sales teams don't improve overnight, so give a new plan a full quarter before you judge it, and read the first number before the others.

How Often Should You Change a Sales Comp Plan?

Review plans annually, before the plan year starts, and check the assumptions every quarter.

I'd change it mid-year only when a rep's accounts or territory move by more than about 15% of what they could sell, or the market moves under everyone, and then at the start of a quarter.

A new product gets its own short bonus that ends with the period, not a new quota. A rep who changes jobs moves to that job's plan.

When you change it, change it going forward, never on deals already worked. The change to watch for is the one your sales lead brings you, with the numbers, before a rep asks, and all it needs from you is a yes.