[GTM glossary](/glossary.md) Sales compensation plan Sales # Sales compensation plan In short A sales compensation plan is the written agreement that defines how a salesperson is paid. It usually combines a base salary with variable pay, such as commission or bonuses, tied to results like closed revenue or quota attainment. The plan is also a steering tool. Reps tend to do what the plan pays for, so it shapes which products they push, which customers they chase, and how much they invest in long-term accounts. ## What a plan contains * **Base and variable split:** Often written as a ratio such as 50/50 or 70/30. Higher variable share fits roles with more control over the outcome. * **On-target earnings (OTE):** Total pay if the rep hits 100% of quota. * **Quota:** The target the rep is measured against, by revenue, bookings, or another metric. * **Commission rate and accelerators:** The percentage paid per deal, and higher rates once a threshold is passed. * **Clawbacks and caps:** Rules for refunds, churn, or upper limits on payout. --- ## How to design one ### Start with the goal Decide what the business needs: new logos, expansion, multi-year deals, or margin. Pay for that one thing first. ### Set quotas from capacity Say a team needs $4M in new bookings and has eight reps. A flat $500K each ignores ramp time and territory quality, so adjust for both. ### Keep it simple If a rep cannot calculate their own payout in a minute, the plan is too complex to motivate anyone. ### Test edge cases Model a big deal, a small deal, a refund, and a split deal before launch. --- ## Common mistakes * **Paying for the wrong outcome:** Commission on signed deals alone can reward discounting and poor-fit customers who churn. * **Too many metrics:** More than three or four components dilute focus. * **Mid-year changes:** Reworking the plan without notice erodes trust. * **Ignoring ramping reps:** New hires need a guarantee or reduced quota while they build pipeline. --- ## Compensation plan vs. quota The plan is the whole pay structure. Quota is one input: the target the plan measures against. A well-set quota with a badly built plan still produces the wrong behavior. --- ## Sales compensation plan FAQs **What is a sales compensation plan?** A sales compensation plan is the document that explains how a salesperson is paid. It sets base salary, commission rates, bonuses, quota, and the rules for edge cases such as refunds, split deals, and territory changes. **What is a good base to commission split in a sales compensation plan?** There is no universal split. Roles with long cycles and shared effort tend to have a higher base, while transactional roles with direct control over outcomes lean toward more variable pay. Choose based on the role and sales motion. **How often should you review a sales compensation plan?** Most teams review the plan annually, aligned to the fiscal year, and check mid-year whether payouts track revenue goals. Avoid changing the rules during a period without clear notice, because it damages rep trust. **What are accelerators in a sales compensation plan?** Accelerators are higher commission rates that apply once a rep passes a set share of quota. They reward overperformance and keep top reps motivated after they hit target, but they need a cap or review to control cost. Share term --- ## More related phrases * [Sales leadership](/glossary/sales-leadership.md) * [Sales manager](/glossary/sales-manager.md) * [Sales process](/glossary/sales-process.md) ## Similar phrases * [Sales compensation](/glossary/sales-compensation.md) Sales compensation is the total pay a seller earns, usually a base salary plus variable pay such as commission and bonuses tied to quota and performance. * [Quota](/glossary/quota.md) A quota is the sales target a rep or team must reach in a set period, such as revenue closed or meetings booked, and it anchors planning and pay. * [Quota attainment](/glossary/quota-attainment.md) Quota attainment is the percentage of a sales quota a rep or team has achieved in a period, calculated as results divided by quota and shown as a percentage. * [Commission](/glossary/commission.md) Commission is variable pay a salesperson earns, usually as a percentage of revenue or a fixed amount per deal they close. * [On-target earnings (OTE)](/glossary/on-target-earnings.md) On-target earnings (OTE) is the total pay a sales rep earns for hitting 100% of quota, combining base salary and variable commission or bonus.