How to create a sales compensation plan that drives the right behaviors
Design comp structures that motivate high performance, align with company goals, and are simple enough for reps to understand and trust.
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0 of 7 steps completedStep-by-Step Instructions
1 Step 1: Determine the right base-to-variable ratio for your business
Step 1: Determine the right base-to-variable ratio for your business
Enterprise sales with long cycles: higher base (60/40 or 70/30) for stability. Transactional sales: higher variable (50/50 or 40/60) for motivation. Balance risk and reward based on deal size, cycle length, and market competitiveness. Competitive OTE (On-Target Earnings) attracts top talent.
2 Step 2: Set quotas that are achievable yet challenging
Step 2: Set quotas that are achievable yet challenging
Best practice: 60-80% of reps should hit quota in a healthy market. Quotas too low = overpaying. Quotas too high = demoralized team and high turnover. Base quotas on historical performance, market opportunity, and company growth targets. Adjust quarterly based on results.
The Sales Compensation Handbook by Stockton
Comprehensive guide to designing effective sales comp plans
3 Step 3: Decide what to pay commission on
Step 3: Decide what to pay commission on
New business only? Renewals? Expansion? Align comp with strategic priorities. If retention matters, pay on renewals. If growth matters, accelerate for over-quota performance. Avoid paying on activities—pay on outcomes. Simplicity beats complexity: fewer metrics = clearer focus.
4 Step 4: Use accelerators to reward top performers
Step 4: Use accelerators to reward top performers
Pay higher commission rates above 100% quota attainment. Example: 10% commission on first $100K, 15% on next $50K, 20% beyond. Accelerators motivate reps to go beyond quota and create outsized results. Top performers should earn significantly more than average performers.
5 Step 5: Avoid clawbacks and complexity that erode trust
Step 5: Avoid clawbacks and complexity that erode trust
Don't claw back commission if a customer churns unless fraud is involved. Complexity kills motivation—if reps can't calculate their own comp, they don't trust it. Make comp plans fit on one page. Transparency and simplicity build confidence and focus.
6 Step 6: Implement SPIFs for short-term priorities, but use sparingly
Step 6: Implement SPIFs for short-term priorities, but use sparingly
Sales Performance Incentive Funds (SPIFs) drive focus on specific products, regions, or campaigns. Use for limited time (e.g., Q4 push, new product launch). Overuse trains reps to wait for SPIFs instead of selling consistently. SPIFs are tactical, not strategic.
7 Step 7: Review and adjust comp plans annually based on business evolution
Step 7: Review and adjust comp plans annually based on business evolution
What worked last year may not work this year. Review: Are we getting the behaviors we want? Is quota attainment in the right range? Are accelerators motivating? Adjust for market changes, new products, or strategic shifts. Communicate changes early and explain the "why."
