As a revenue leader, you need to fuel continuous growth, all while keeping teams motivated and aligned.

It's a tall order. And for many organizations, the answer is (in part) pay for performance models—a powerful compensation strategy.  

With pay for performance (P4P), an individual's contributions impact the business, but they also shape the employee’s paycheck. The intent is to create an undeniable link between effort, output, and reward.

But as with most B2B revenue operations, it's never as simple as slapping commission-based pay on sales targets. Sales cycles are long, resourcing is complex, and revenue leaders juggle many priorities.  

P4P isn’t just about motivating your go-getters—it’s about crafting a data-backed program that propels the entire organization forward. Done right, it's a multiplier, driving higher performance, loyalty, and growth. But wrong? It can easily misfire, leaving top talent demotivated.

Whether you’re refining an existing strategy or starting fresh, below we’ll cover the key elements of P4P and discuss tailoring it to your needs.  

From using data and technology to design smarter incentives—to motivating with a focus on sustained growth—you’ll learn how P4P can transform your revenue engine.

So, what is a 'pay for performance' system?

Pay for performance is simple. In short: employees get rewarded financially based on tangible business outcomes they achieve. And often, this goes beyond the basics; it’s not as straightforward as simply hitting sales quotas or closing deals.  

P4P models are carefully designed compensation structures designed to tap into human psychology to motivate team members while moving everyone towards a common goal: generating revenue (among other outcomes) for the business.

Performance-based incentives are most used (and have the greatest impact) in roles where individual or team contributions can be clearly measured and linked to specific outcomes.  

These roles often include:

1. Sales: Sales teams are the most typical users of pay-for-performance systems. Salespeople are commonly compensated through commissions or bonuses based on meeting sales quotas, revenue generation, or customer acquisition targets.

2. Business development: Similar to sales roles, business development professionals often have performance incentives tied to deal-making, partnership creation, or expanding market reach.
   

3. Customer success: In some businesses, customer success teams may be rewarded for client retention rates, upselling, cross-selling, or overall customer satisfaction metrics tied to retention or growth.
   

4. Performance-based marketing: In roles where marketing efforts can be linked to direct revenue impact, such as demand generation or campaign performance (measured through conversion rates), pay-for-performance models may be used.
   

5. Operations (incentivized by efficiency gains): In operations or production roles, pay-for-performance can be applied when the role’s impact is measurable by output or efficiency improvements, like reducing costs or increasing productivity.
   

6. Executives: Senior executives, including CEOs, COOs, and other leaders, may have performance-based compensation tied to company-wide financial targets, profitability, shareholder value, or strategic objectives.

Pay-for-performance models vs. traditional compensation models: What’s the difference?

Unlike other compensation models (think static salaries or arbitrary bonuses), P4P links compensation directly to measurable outcomes. Whether it’s revenue growth, profit margins, or customer satisfaction, employees can see—often in real-time—how their efforts translate into rewards.  

Another key difference is that with traditional compensation models, employees are compensated (largely) equally regardless of performance. A top performer may earn the same amount as someone struggling to hit their benchmarks.  

Pay-for-performance, however, allows you to reward top performers and find impactful ways to incentivize lower-performing employees.  

The types of pay-for-performance models

Under the broad umbrella of P4P generally, there are several types of pay-for-performance models to consider depending on your team structure and goals.  

Merit-based pay

Merit pay is one of the most common performance-based pay options. It involves increasing an employee’s salary at their next salary review meeting based on meeting defined goals or exceeding performance expectations.  

Merit-based pay is a great way to recognize top performers on non sales-teams, providing employees a direct way to impact their salary.  

Incentive pay and variable pay

Incentive pay (also known as variable compensation) is one of the most common pay-for-performance models. Incentive pay can include a wide range of compensation types, including commission, stock options, bonuses, etc.  

Individual incentives vs. team-based incentives

The key difference between individual vs. team-based incentives is that the former rewards individuals for their direct impact on results and the latter rewards a team’s accomplishments as a group.  

Which option works best for your business depends on how your teams are structured.  

• For highly independent sales roles, individual incentives are most logical.  

• However, when teams are tasked with a goal they must achieve together, like completing a project on time, staying under budget, or collectively hitting sales quota, team-based incentives can be very effective.  

The risk with implementing team-based incentives is that top-performers may feel resentful of putting in more effort and receiving the same reward as lower-performers. Which is why it’s important to consider the behavior you’re trying to reinforce with the incentive.  

• If strong individual performance is required, reward individual performance.  

• If team work and equal collaboration is crucial, team-based incentives may work best.  

• Overall, many large organizations use a mix of both of these incentives.

The importance of P4P in talent retention and motivation

Think performance pay is just about hitting quotas? Think again. When structured correctly, it becomes a cornerstone of your retention strategy. High performers thrive in environments where they feel their efforts are recognized and rewarded, and a solid P4P model can offer this.

But remember—it’s a fine line.  

Push too hard, and the pressure can backfire leading to burnout and turnover. The key is to design incentives that are both attainable and aspirational. You want to keep your best people energized and focused, not stressed and disengaged.

“If you're looking for longevity out of a salesperson, you need to give them the time and tools to succeed. This is where sales compensation comes into play. Without a motivating and rewarding comp plan, the rep will struggle to produce results and quickly move on to another org.”

Dr. Robert Bieshaar

Senior Director, worldwide compensation, Autodesk

How pay for performance impacts revenue growth

In B2B where long sales cycles and high-stakes deals are typical, a well-structured P4P model can be fuel igniting consistent growth.  

Today, top revenue leaders use P4P to create a laser-focused, results-based culture.

Employees can receive incentives (including bonuses, commissions, or increasing salary adjustments re: variable pay) based on achieving specific business goals or metrics. These goals can include sales targets, closed deals, expansion of accounts, contributions to net dollar retention, and more.

Types of sales compensation plans and incentives

There’s no slam-dunk when it comes to structuring sales compensation. Different industries, businesses, and sales strategies require a unique plan design to support your goals.  

That said, here are a few common sales compensation plan structures you can choose from:

1. Straight salary: A fixed, regular paycheck. This is rare for salespeople, because there’s no performance-based element.

2. Base salary plus commission: A fixed, regular paycheck with commission payouts based on sales. This is the most common type of sales comp plan.  

3. Commission only: Employees are compensated solely on sales performance.

4. Tiered commission plans: Employees receive increasing commission rates based on reaching higher tiers of performance.

5. Profit-margin plans: Commission is linked to net profit generated by selling a product or service.

6. Territory volume/team plans: Reward sales reps based on the total sales volume within a specific geographic or market territory.

7. Activity-based incentives: Reward activities at key milestones throughout the sales cycle to encourage certain behaviors.  

Types of compensation goals that directly link performance to company revenue

Setting the right goals for your sales team when sales compensation planning can make or break your ability to impact your bottom line.  

When done correctly, sales performance goals (tracked as your sales performance indicators) should directly influence revenue and other key company performance metrics.  

Here are a few examples of compensation goals to leverage within your sales organization:

1. Sales targets

2. Closed deals

3. Expansion of accounts

4. Expansion into new, strategic markets

5. Closed deals of strategic product/service lines

6. Impact on net dollar retention

The pay-for-performance model helps leaders shift productivity, pushing teams beyond their comfort zones.  

It’s about ensuring that every role in the revenue engine, from account management to customer success, pushes towards the same goal: sustainable growth.

The common challenges of implementing P4P

Far from a silver bullet, without careful planning, paying for performance can backfire, creating resentment or burnout among your top performers.  

Here are the key challenges and pitfalls to watch out for when designing your performance-based incentives:

Misaligned goals with business outcomes

The biggest pitfalls? Misaligned goals. If the KPIs aren’t clear or if change-management and its associated communication falters, employees may focus on the wrong targets, leaving you with gaps in your business outcomes.  

Subjective, unclear metrics

If your team doesn’t fully understand how they’ll be measured, it can cause confusion. Clearly understanding how commissions are calculated has a direct impact on employee motivation.

The metrics you set should follow the well-known pillars of SMART goals: specific, measureable, achievable, relevant, and time-bound. Make sure you properly communicate all of these pillars within your compensation plan, so everyone is on the same page.

Encouraging unhealthy competition within teams

Worse, the wrong incentives in a poorly designed compensation plan can lead to cutthroat competition instead of collaboration, undermining morale. Revenue leaders must be vigilant, continuously revisiting and refining the program to keep everyone on the same page.

Trends in pay-for-performance programs

Pay-for-performance programs are getting more advanced. In fact, we're ushering in an era of more sophisticated, science-based approaches, including the use of AI and behavioral sciences.  

1. AI-driven performance tracking

Disparate tools, clunky calculations, and error-prone data will soon be ancient history.

Modern sales performance management (SPM) platforms often incorporate AI to help track performance, assess the effectiveness of compensation structures with predictive modeling, and more.  

You can think of AI as a co-pilot, helping you design and execute effective, measurable P4P programs with less overhead than ever before. SPM software can really help you scale your sales performance management program more effectively than with a typical ICM alone.

2. Behavioral science and incentive design

To design effective performance-based pay models, you need to understand what really motivates people. Knowing how to intrinsically motivate your sales force will make it that much easier to define goals, objectives, and incentives that will incentivize the behavior you’re looking for.  

Leading sales orgs are now asking questions, like:

• What is the psychology behind incentives and what actually drives top performance?

• How can we deploy and test new insights from behavioral and decision science research in our incentive plans?

• What are nudge-based strategies that can help communicate plans and potential outcomes clearly?

• How can we measure the effectiveness of our plans with modern statistical methods?

Considering these questions and the behavioral science of incentives will help transform your incentive programs with a science and data-backed approach.

3. P4P in hybrid and remote work environments

Since 2020, hybrid or remote work environments have become mainstream, and while hybrid or remote environments don’t necessarily require different P4P plan structures, companies are investing further to ensure remote employees are still set up for success and hitting targets. Investments like:

• Remote-friendly mentorship, training, and professional development opportunities are important, as employees may miss out on natural mentorship that occurs when working in person with peers.  

• Clear pathways for feedback. Hybrid/remote work can create silos, making it difficult to hear directly from employees whether your incentive compensation plans are effective or clear.  

Regularly ask hybrid and remote employees to provide feedback, so you can continually evaluate your compensation plans and keep your whole team high-performing.

7 steps to creating effective pay-for-performance programs

Far from a plug-and-play effort—pay for performance is more of an art and science that requires some precision. You can't just arbitrarily pick a few KPIs and attach a dollar sign. Instead, you’re crafting a compensation plan where every metric is carefully chosen to drive the behavior you need most.  

Think about metrics like revenue per deal, customer retention rates, or cost of acquisition. But don’t stop there. Consider long-term vs. short-term incentives—(you need to balance both quick wins and sustained performance).

You'll potentially build tiers into your program, so employees at every level know how they can hit the next rung of success.  

Below are the key steps you'll need to consider as you set or refine any compensation plan:

1. Define clear, measurable performance metrics

Defining and communicating performance metrics is an important first step. Tied to employees' take home pay, your P4P metrics need to be ultra-specific, actionable, and directly tied to the business's overall revenue objectives.

• For sales teams: metrics like deal size, sales velocity, and customer acquisition cost with outbound motions are vital. These metrics ensure salespeople are rewarded for closing deals that add significant value, not just volume.

• For roles in operations or customer success: metrics might look like reducing churn, increasing customer satisfaction (CSAT or NPS scores), or boosting renewal rates or customer lifetime value. These roles drive long-term revenue retention and expansion.

• Cross-departmental outcomes: Align each team’s goals with the broader business strategy. Marketing could be measured on the quality of leads aligned to set criteria, while finance might focus on cost optimization per sale.

2. Align incentives with business objectives

The next step after determining the performance metrics you’d like your team to achieve, is ensuring they align with your overall business objectives.  

For example, if a B2B SaaS company aims to grow its customer base by 20% and improve retention by 15%, a sales team would be misaligned if reps are only measured by the number of new deals closed (as they might target poor-fit customers who quickly churn, hurting retention efforts).  

Aligned to top-level business objectives, a P4P program might look at the following:

• Revenue growth: Focus on incentivizing behaviors, like acquiring high-value clients, expanding into new markets, or increasing recurring revenue.

• Customer retention and lifetime value (CLV): Incentivize not just for signing deals, but ensuring long-term customer satisfaction and retention (better customer experience outcomes).

• Efficiency and cost reduction: In operations or finance, metrics that focus on reducing expenses without quality tradeoffs can drive both profitability and efficiency across your organization.

Regularly reassess your performance metrics whenever company-wide planning occurs, like during quarterly or annual planning. This will make sure that your sales team is well positioned to support company growth.

3. Set performance tiers and stretch goals

To motivate employees to go beyond the basics, P4P programs often include performance tiers—levels of achievement that correspond with higher rewards, plus, for top-tier employees, targets just out of reach.  

• Performance thresholds: Set a baseline employees must meet to be eligible for rewards, but then offer additional tiers that increase incentives thresholds are surpassed. This ensures even modest improvements are rewarded, while top performers are recognized and motivated to push further.

Incorporating these into your sales compensation plan, in addition to performance metrics, is a great way to push your high performing employees to reach new levels. It can also be a great way to experiment with different incentives before incorporating them into your main performance metrics.

4. Incorporate both short and long-term incentives

An effective P4P program strikes a balance between short-term wins and long-term success. Without long-term rewards, employees may focus too narrowly on quick wins at the expense of sustainable growth.

Revisit your defined performance metrics, performance tiers, and stretch goals to ensure there’s a balance between short-term and long-term incentives. If there are gaps on either side, consider what incentives you can add to create a holistic, well-rounded compensation plan.

• Short-term incentives might include quarterly bonuses for achieving sales targets or completing high-impact projects. These rewards should be frequent enough to maintain momentum and keep employees engaged.

• Long-term incentives like equity, profit-sharing, or performance bonuses tied to annual or multi-year objectives can help foster loyalty and align with employees' long-term interests.

5. Build a transparent, fair compensation structure

Absolutely fundamental to a well-run program, employees need to understand how their performance is measured and how rewards are calculated. Ensure you:

• Communicate the metrics, reward structure, and expectations clearly from the start. Ensure employees know exactly what they need to do to achieve their goals.

• Make compensation structure equitable across different roles. Sales teams may have more straightforward metrics, but if they also receive variable pay, roles in customer support, marketing, or product development also need clearly defined objectives and fair reward systems.

• Use data to drive decision-making. A P4P program that relies on subjective judgments quickly becomes a source of resentment within the team.

6. Deploy and use technology to run your program‍

On the topic of data-driven design and decision making, the days of manual sales performance tracking are over. An integrated incentive compensation plan that we’ve discussed in this article will be challenging to manage without the right system.  

Modern pay for performance systems are powered by software that tracks metrics in real time, helps you model and predict future performance, and those that create a source of truth for accurate compensation decisions.

When searching for an SPM platform, shortlist vendors that can leverage large volumes of data from every corner of the organization from your CRM systems to your HR systems, to everything related to territory, quota, incentives, and more. Uniting all this data in one place allows you to uncover revenue opportunities you may never have found on your own.

7. Review and adjustment on a regular basis‍

As your business evolves, so must the compensation model. Make sure to:

1. Schedule regular check-ins (annually is common, but can you push for the data insights to go quarterly?) to evaluate the effectiveness of the P4P program.  

2. Further, gather employee feedback to identify pain points where the program might be falling short. Employees are often the first to notice when incentives no longer motivate or when goals are unrealistic.

If market conditions shift, your organization and the P4P model must be agile enough to adapt quickly.

Frequently asked questions about pay-for performance

Is pay-for-performance good or bad?

Pay-for-performance systems can be both good and bad. It all depends on how they're designed and implemented.

Positively, when employees know their efforts directly influence their earnings, they’re incentivized to work harder and achieve specific goals. Oppositely, P4P can have downsides if poorly structured. If performance metrics are too narrow, employees can focus solely on what gets them paid, ignoring broader business goals or cutting corners.

Executed thoughtfully, it can be a powerful tool—but if mismanaged, it can backfire.

Is pay-for-performance the same as management by objectives or m.b.o?

While pay-for-performance and management by objectives (MBO) share similarities (in that they both align employee efforts with business goals), they're distinct concepts.

• Pay-for-performance directly ties compensation (such as bonuses or commissions) to the achievement of specific, measurable performance outcomes. It primarily focuses on rewarding individual or team performance based on predefined metrics, like sales targets or productivity levels.

• Management by objectives (MBO) refers to a broader management approach or principle/concept where managers and employees collaboratively set goals for a specific period, and performance is evaluated based on the achievement of these goals. MBO emphasizes goal setting, ongoing performance reviews, and feedback, but it doesn’t always directly link compensation to those goals. While MBO can be a component of a pay-for-performance system, it’s more focused on aligning individual contributions with organizational objectives through goal-setting and assessment.

You can think of pay-for-performance as focused on compensation based on results, while MBO is about goal alignment and performance management more broadly.

How does pay-for-performance differ from traditional pay structures?

With traditional pay structures, compensation is typically based on an employee’s job title, seniority and experience, pay-band, and tenure. Raises tend to be standardized and infrequent and based on inflation, change in responsibilities, or length of service.

Pay-for-performance, on the other hand, directly rewards employees with additional compensation and incentives based on their performance. Incentives are a key component of the compensation package and are designed to drive optimal performance and key outcomes for the business.

What are the best metrics for evaluating performance?

There’s no one-size-fits all approach when it comes to the best metrics for evaluating performance. The metrics you choose should depend on factors like the job to be done (marketing, sales, customer success, etc.), company objectives, industry, etc.  

Keep in mind that the best metrics for motivating employees are attainable, aspirational, measurable, objective, and clear.

Examples of metrics for sales teams include:

• Total revenue generated

• Revenue generated from new business/accounts

• Revenue generated from existing accounts

• Conversion rate

• Length of sales cycle

How can P4P be adapted for different industries?

Pay-for-performance models are versatile across industries. Define what revenue-generating behaviors you’d like to incentivize within your organization. This forms the basis of your incentive compensation plan. From there, consider what incentives make the most sense for your business and will generate a good ROI.