Designing a sales compensation plan means deciding, for each role, how much cash is at risk, what results earn it, and how payouts move below and above target, then testing that design on realistic numbers before anyone signs it. The order matters: roles first, money second, mechanics third. When a draft is ready, compare it with your current plan on a simulated team in the commission plan simulator before you publish anything.
The numbers in this guide are illustrative and chosen for easy arithmetic. They are not market data.
1. Start from roles and coverage
List every role that influences a sale (account executives, SDRs, account managers, customer success, sales engineers, managers) and write down what each one controls. A plan pays for outcomes a person can actually move; paying an SDR on closed revenue they never touch, or an AE on renewals handled by another team, weakens the link between effort and pay.
At this stage, also decide coverage rules: territories, named accounts, segments, and who owns a deal when roles overlap. Most commission disputes start here, not in the formulas. Our example plans by role show how measures differ from one role to the next.
2. Set the pay mix
The pay mix is the split of target cash between base salary and variable pay, such as 50/50 or 70/30. The more a role controls the outcome directly, the stronger the case for a larger variable share. We do not publish “typical” mixes by role because we have no sourced data for them; if you use a benchmark, check its source, sample and date.
3. Fix OTE
On-target earnings (OTE) is base plus variable at 100% of quota. It is a market and budget decision, and it sets the scale for every other number. The OTE guide explains the arithmetic, and the OTE calculator shows pay at several attainment levels.
4. Set quotas
A quota should be achievable by a solid performer given the territory and the pipeline. Two methods exist and should be compared: top-down (the company revenue target spread across capacity) and bottom-up (what each territory can realistically produce). Build both in the quota calculator, and check that the total of rep quotas covers the company target with some margin for vacancies and ramping hires; the sales capacity calculator helps with that. The sales quota guide goes deeper.
5. Choose the measures
Pick the results that define success for the role, give each a weight, and define each one precisely: what counts as a booking, which date applies, how multi-year deals, discounts and cancellations are treated. A measure that cannot be pulled cleanly from the CRM or billing system will be disputed every month.
6. Define the mechanics
Translate the variable target into rates and rules:
- Rate: variable target ÷ quota gives the base rate at plan.
- Shape: flat, marginal tiers or retroactive tiers.
- Below quota: a threshold or decelerator, or pay from the first dollar.
- Above quota: accelerators, and whether there is a cap.
- Crediting: splits, overlays, team credit.
- Timing: when commission is earned (booking, invoice, cash), when it is paid, and when it can be recovered (clawbacks, draws).
The commission structures library explains each mechanic with an example.
7. Write the governance rules
Decide who approves the plan, who can grant exceptions, how disputes are raised and resolved, and how the plan handles leavers, transfers, territory changes and mid-year updates. Put a clawback rule in writing before you need it; the clawback policy guide lists the points to cover.
8. Draft the plan document
Each participant should receive a written plan that states the role, the period, OTE and pay mix, quota, measures and weights, rates and tiers, crediting and split rules, timing of payment, clawbacks, caps, the dispute process, and the company’s right to amend the plan. Commission agreements can be subject to state wage law, so have employment counsel review the template. Our commission plan templates give a starting structure.
9. Test the plan before launch
Run three tests:
- Payout curve. What does one rep earn at 50%, 100%, 150% of quota?
- Team cost. What does the whole team cost on a realistic distribution of attainment, not just at 100%? The commission budget calculator and the plan simulator both do this.
- History replay. Re-run last year’s deals through the new rules and compare each rep’s pay with what they actually earned.
Illustrative example: OTE $150,000, 50/50 mix, annual quota $750,000, base rate 10% ($75,000 ÷ $750,000), 1.5× accelerator (15%) above quota, no cap.
| Attainment | Bookings | Variable pay | Total cash |
|---|---|---|---|
| 50% | $375,000 | $37,500 | $112,500 |
| 100% | $750,000 | $75,000 | $150,000 |
| 150% | $1,125,000 | $75,000 + $56,250 = $131,250 | $206,250 |
At 150%, the $375,000 above quota pays 15%, or $56,250. Variable pay at quota is 10% of bookings and total cash at quota is 20% of bookings; check those ratios against what the business can afford.
10. Communicate the plan
Explain the plan before the period starts, in a session where reps can ask questions, and give each person a one-page summary with their own numbers. Show worked payouts at a few attainment levels; reps trust a plan they can calculate themselves. Collect signed acknowledgements.
11. Review on a fixed cadence
Review annually as part of planning, with a mid-year health check that looks at attainment distribution, cost of sales, disputes and exceptions. Change mechanics between periods rather than during them when you can.
Key takeaways
- Design in order: roles, pay mix, OTE, quota, measures, mechanics, governance.
- Define every measure so it can be pulled from a system without debate.
- Put timing, clawbacks, splits and amendments in writing before launch.
- Test the curve, the team cost and a history replay before publishing.
- Communicate with worked examples and review on a fixed cadence.
Frequently asked questions
How many measures should a sales compensation plan have?
As few as the role allows. Each extra measure takes weight away from the others and makes the statement harder to read. If a measure would carry only a small share of variable pay, consider whether it belongs in a SPIFF, an MBO or a manager conversation instead.
Who should own the sales compensation plan?
Ownership works best when shared: sales leadership defines what behavior the plan should drive, Finance checks cost and affordability, RevOps or sales operations runs the mechanics and data, and HR and legal review the plan document. One person should still be accountable for publishing it and for the exception process.
How often should a sales comp plan change?
Designing the plan for a fiscal year, with an annual review and a light mid-year check, keeps it stable. Frequent mid-period changes erode trust; when a change is unavoidable, the plan document should say how it is announced and from when it applies.
Should the plan be tested before launch?
Yes. Run the plan on last year's deals and on a realistic spread of attainment, compare total cost with the current plan, and look at who gains and who loses. A plan that pays well at 100% can still be expensive or unfair elsewhere on the curve.