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Guide

How to Build a Sales Compensation Plan That Works

Show me a sales team behaving strangely and I will show you a comp plan that pays it to behave that way. Reps do exactly what the plan pays them to do, not what you say in the kickoff. If the behavior is wrong, the plan is wrong. Here is how to build one that pulls in the right direction.

Split base and variable by role

Not every seat should carry the same risk. The split depends on how much control the person has over the outcome. Load variable onto a seat that only partly influences the result and you punish people for things outside their hands.

• SDR, roughly 70/30 base to variable. They create pipeline but do not close, so you cannot hang all their pay on a number they only partly control. Pay them for qualified meetings and pipeline that converts, not raw activity.
• AE, roughly 50/50, sometimes 60/40. They own the close, so more of their pay should ride on it. This is the seat where variable really bites.
• Sales leader, mostly base with a component tied to team quota, so they are paid to build and coach the whole team, not to hoard the best deals for themselves.

Set OTE to the market

OTE, on-target earnings, is the total a rep makes at 100 percent of quota. It is the number that recruits and retains, so anchor it to your market or you lose people to the companies that got it right. Underpay OTE and your best reps leave the moment someone offers them a fair number.

Get the quota-to-OTE ratio right

The oldest rule in sales comp is that a rep should generate three to five times their total cost in bookings. An AE on a 150k OTE carries a quota somewhere around 450k to 750k, adjusted for margin, cycle and deal size. Set it too low and you overpay for mediocrity. Set it too high and reps decide it is unhittable and stop trying, which is the most expensive failure of all, because a demotivated team still draws base.

Pay for outcomes, and keep it simple

Commission on closed revenue, not on calls made or emails sent. The moment you pay for activity you get activity, reps optimizing for the dashboard instead of the deal. Pay for the result and let them find the path.

Then keep it simple enough that a rep can calculate their own check. That is the test almost every plan fails. If a rep cannot do the math in their head after a deal closes, the plan is too complicated to motivate anyone. One or two clear levers and a rate they know cold beats a page of accelerators nobody understands.

The mistakes that backfire

• Capping commission, so your best rep stops selling the day they hit the ceiling
• Changing the plan mid-year because someone is making too much, which is the fastest way to kill trust
• Too many accelerators and kickers nobody can follow
• Quotas set by what the board wants instead of what the market supports
• Paying on booked revenue with no clawback when the deal cancels, so you reward signings that never pay

Where this fits

Common questions