Your complete guide to strategic sales compensation plans (with plan examples)

You can barely believe it. You’re about to meet your sales target for the quarter...It's finally that month.

But suddenly your sales leader hits you with the news. The star sales rep is moving on to a higher-paying role.

Already short-staffed, now the sales team will deal with lost momentum, poor morale, and quarterly bonuses just went out the door (goodbye trendy new condo furniture).

Considering the average tenure of a sales rep is 18 to 20 months, this is all too common. Yet many sales and revenue leaders don’t anticipate or actively prevent sales turnover by designing attractive sales compensation plans.

Today's sales staff have more information now than ever about salary and incentives, not to mention US businesses spend $800 billion(!) on sales comp as one of the biggest investments your go-to-market team makes annually.

As a massive investment, you need to leverage sales compensation to maximize revenue growth as well as attract and retain a highly motivated sales force—all pushing in the same direction.

In this comprehensive piece, we'll cover everything. From the factors comprising sales compensation, through to exploring some common compensation plan structures and examples, demystifying the jargon along the way.

What is strategic sales compensation?

Sales compensation is the carefully structured mix of base salary, commission, bonuses, and other incentives for rewarding your salespeople. Sales comp pushes the entire team to exceed their targets and accounts for various levels of experience, skillset, and the product(s) you sell.

But it’s not just about numbers and calculations in a spreadsheet—sales compensation is a strategic catalyst for driving revenue growth.

For revenue and sales ops leaders, the intricacies of sales compensation are where the magic happens. A well-designed comp plan does more than just pay your reps; it aligns their actions with your company’s goals, ensuring every deal they close propels the business forward.  

The best compensation plans (while simple to communicate to reps) introduce just the right amount of complexity to keep your sales team engaged, continually adapting to shifting targets, and ready to seize new opportunities.

So what is a sales compensation plan?

Where the rubber hits the road, a sales compensation plan is the documented framework, program, or plan outline that determines and communicates how you'll reward salespeople based on how much revenue they generate, how long it takes to close deals, and how risky the deals are.  

A sales compensation plan will include and communicate all the terms and conditions sales reps need to know around earnings, as well as sales crediting rules.

Compensation plans tend to be highly complex because leaders tailor them to the company’s needs and—often—even individual reps. The purpose of a sales compensation plan is to motivate salespeople to achieve business goals, but it can also serve as a management tool, too.  

Crafting win-win strategies that benefit both the business and the sales rep requires a delicate mix of business analytics and creative thinking.

Ultimately, a well-crafted sales compensation plan doesn’t just reward past performance; it actively drives the behaviors and actions that lead to future success, making it an essential component of your overall sales strategy.

The benefits of optimizing sales compensation

Before getting into our sales comp plan structure examples, let's quickly cover some of the top reasons organizations go to the effort of thoughtfully designing, implementing, and fine-tuning what can be fairly complex sales compensation plans:

1. Maximized revenue growth via high-impact sales activities

One of the main reasons you want an optimized sales compensation plan is its ability to direct your sales team’s focus toward the highest-impact activities possible.  

When compensation plans strategically match your company’s revenue goals, sales reps are naturally incentivized to prioritize actions that yield the greatest returns.  

Whether it’s targeting high-margin products, closing large enterprise deals, or entering new markets, a well-structured sales comp plan ensures your team’s efforts are concentrated on driving the most significant revenue growth.

By offering higher commission rates for selling premium products or landing multi-year contracts, you guide your sales force to concentrate on deals that have the potential to deliver more substantial value to the company, improving overall sales efficiency.

2. A highly motivated sales force

Second, when sales reps clearly understand how their compensation is tied to specific outcomes, they're equipped to make decisions executing your company’s top objectives.

Whether through upselling existing clients, closing net new deals, or expanding into untapped markets, if the comp plan makes it clear what's priority and unlocks earnings, this helps reps know how to best impact business growth and empowers them.

Further, compensation plans can be tailored to motivate different types of sales behavior. For instance, bonuses tied to customer satisfaction scores encourage reps to focus on delivering exceptional service post-sale, while tiered commissions incentivize them to exceed quotas and push beyond their limits. A clear comp plan (and individualized performance dashboards) fosters a sense of ownership and accountability, as sales reps see a direct connection between their actions and their earnings.

3. Attracting and retaining top performers

Finally, when compensation plans are rolled out clearly, they create a transparent environment where sales reps know exactly what is expected of them and how they will be rewarded. Transparency around earnings helps to build trust between sales teams and leadership; it eliminates ambiguity.

High-performing sales reps are often acutely aware of their value and seek out rewards and pathways for future growth. By providing transparent compensation, you show your commitment to recognizing contributions.

The four essential elements of sales compensation  

When designing a sales compensation plan, your org's compensation and sales ops team needs to consider the various components that can drive both individual and team performance. You're looking to build out a particularly well-rounded structure.

Here’s a breakdown of four key elements considered in any competitive sales comp plan:

1. A competitive base salary

A base salary is the predetermined amount you'll pay an employee each month, regardless of performance or revenue generation. This base provides financial stability to sales team members, fosters loyalty, and ensures reps are focused on long-term success rather than just short-term wins. For this, you'll consider industry benchmarks, cost of living in HICOL areas, and specific skills and experience you require to sell to your target market.

2. Innovative commission structures

Sales commission is synonymous with sales careers. It's a portion of revenue (usually in addition to base salary) given to a sales employee as part of the official compensation plan. Some sellers work entirely on commission.  

Commission structures incentivize specific behaviors aligned to company objectives. Companies often implement tiered commission rates that increase as sales reps exceed their quotas, or implement multipliers for selling high-margin products or landing strategic accounts. A tiered commission approach encourages reps to be ambitious and strategically prioritize their efforts.  

You can learn more about commission in depth here.

3. Performance-based incentives & bonuses

While base salaries and commissions are the foundation, performance-based incentives and bonuses are layered on for exceptional results.  

Sales incentives (such as spiffs, for example) can be tied to individual achievements, like exceeding quarterly quotas or closing key deals, or can be applied to team-based performance, like hitting company-wide revenue milestones.  

Bonuses, similarly, are an extra lump sum given based on the company’s performance. Typically, it's an unspecified amount annually and will vary depending on the year’s results. According to Yale and Harvard research, bonuses do indeed increase productivity. As found here, the more often bonuses are given (quarterly versus annual), the more revenue they can generate.  

4. Comprehensive benefits and executive perks

Rounding out your sales compensation plan structure, don’t overlook benefits and executive perks. While these may not directly impact day-to-day performance, they play a critical role in employee satisfaction and retention.  

Most companies offer a robust benefits package including health insurance, retirement plans or 401K contributions, and wellness programs supporting well-being. For higher-level executives, you can consider perks like stock options, profit-sharing, or exclusive memberships reinforcing star players' value to the company.  

The 6 most common types of sales compensation plan structures with examples

When it comes to structuring sales compensation, there’s no one-size-fits-all approach.  

Different businesses and sales strategies require different types of plan designs to best align incentives with overarching goals. And compensation teams combine the elements of a potential plan in many ways.

Here’s a look at some of the most common sales compensation plan structures, with examples of how each can look in practice.

1. Straight salary

With a straight salary plan (also known as "salary only compensation" plan), you offer a fixed, regular paycheck without any additional incentives based on sales performance. This fixed pay is provided regardless of whether you met quota.  

Salespeople rarely receive salary-only compensation. While there's preference toward salary predictability, this compensation model does little to motivate sales reps to hit targets.  

Pros of this comp plan type:

• This type of plan is typically only suitable for roles where the sales cycle is exceedingly long or where the focus is on customer service and relationship-building rather than immediate sales (i.e. it's more likely you'd offer salary-only compensation to a customer success manager, for example).

Potential pitfalls:

• If sales reps reach quota, they may call it a day vs. push forward as there is no added incentive to overperform.

2. Base salary plus commission

A base salary plus commission structure is the most common type of sales compensation plan. The pay structure offers employees the security of a salary while also offering motivation through commission.

For example, a tech company might pay a sales rep a base salary of $50,000 a year base salary, plus a 10% commission on every software license sold.  

It’s normal to find a 60 to 40 split between salary and commissions in this model. Meaning reps earn 60% fixed income and 40% variable pay. However, this ratio gets closer to 70:30 or 75:25 when you expect your sales rep to educate a prospect about a complex or technical product.

The longer a sale takes, the more complex the process, and the more influence a salesperson has on the closing, the higher the commission percentage should be.  

Here's an example of a base salary plus commission sample plan:

3. Commission only

Companies with a commission-only structure pay employees based solely on sales performance; in other words, sales reps earn income only from the sales they close.

For example, a sales rep might make a 3% commission per subscription. But if the sales rep doesn't sell any subscriptions during the pay period, they take home zero pay. If they do, they might take home pay only after the customer signs the contract and pays a deposit.

Pros of this comp plan type:

• Allows companies to mitigate risk (you don't pay for revenue that isn't realized).

• Can be highly motivating for those who thrive on the thrill of the sale and are confident in their ability to consistently meet or exceed targets.

• Encourages closing deals quickly and efficiently, as a reps' income depends entirely on performance.

Potential pitfalls of this comp plan type:

• This type of sales comp plan often comes with heavy pressure and discomfort for reps.

• It's difficult to accurately budget your expenses as commission will fluctuate based on performance, but at least your expenses are directly tied to revenue.

Here is a commission-only sample plan example:

4. Tiered commission plans

Tiered commission plans reward sales reps with increasing commission rates as they reach higher sales thresholds. This structure encourages reps to exceed their targets and continue pushing for higher performance throughout the sales period.

For example, a pharmaceutical company might implement a tiered commission plan where reps earn a 5% commission on the first $50,000 in sales, 7% on the next $50,000, and 10% on all sales over $100,000. This structure motivates reps to keep selling, as their commission rate increases with their total sales volume.

Here, we'll also note the ‘back to dollar 1’ concept as it's often a factor in tiered commission plan structure.

In the context of commission plans, 'back to dollar one' refers to a structure where once a salesperson meets or exceeds their quota, they not only earn commission on the sales above the quota, but also retroactively earn commission on all sales, starting from the first dollar (i.e., from dollar one).

5. Profit-margin plans

In profit margin-based plans, commissions are tied to the net profit that is generated from selling a product or services. This encourages reps to focus on selling higher-margin products or negotiating better deals that enhance the company’s bottom line.

Example: A manufacturing company might pay out a commission based on the net profit generated from selling a suite of products and services. The rep has control over the price quoted to customers, as well as which solutions and services can be sold (some may be more profitable than others).  

6. Territory volume / team plans

Territory volume / team plans reward sales reps based on the total sales volume within a specific geographic or market territory. Reps are paid on a territory-wide basis versus individual-sale basis, and the total sales for a given period are split among the reps who worked in that territory.

This plan can be effective for companies that want to encourage growth in specific areas or markets.

Three additional types of sales compensation plans

in complex sectors like tech, healthcare, and finance, sales compensation plans often need to evolve and become more advanced to align with strategic goals.  

Below are four advanced types of sales compensation plan structures that large enterprises often deploy, along with examples tailored to these industries:

MBO (Management by objectives)
This is a type of compensation structure that focuses on collaborative goal-setting between managers and employees to align individual activity with organizational goals. It's also referred to as management by results or management by planning.  

Essentially reps are measured based on activity metrics (meetings booked, presentations given, etc.). It's a structure employed when revenue type data is either not available, or not accurate if available. Or if there are regulatory limits on incentivizing reps. This structure of compensation can be relevant in the pharmaceutical industry, for example.

Check out our full primer on management by objectives here.

Equity-based compensation

Equity-based compensation plans grant mainly executives a stake in the company, typically through stock options or shares. This plan aligns the interests of very senior sales staff with the long-term success of the company, making it particularly appealing for employees in larger, publicly traded companies where the company’s future growth is a key motivator.

Example: In a large financial services firm, a vice president of sales might receive an annual base salary plus stock options that vest over a four-year period. For example, they might be granted 10,000 stock options with a strike price of $50. If the company’s stock price rises to $100, the executive can exercise the options, netting a significant profit. This type of plan encourages the executive to focus on strategies that will increase the company’s overall value.

Role-specific compensation strategies

Role-specific compensation (while not really a different type of plan type necessarily) is different in the sense that it tailors compensation to the unique responsibilities and impact of different sales roles within the organization.  

In short, you're measured on something other than revenue. Role-specific comp recognizes that not all sales roles contribute to revenue in the same way, and therefore, different roles require different incentive structures.

Example: In a large tech company, a solutions architect who plays a critical role in pre-sales and post-sales support might have a compensation plan that includes a base salary of $180,000, a smaller commission component of 1% on deals they support, and a quarterly bonus of up to $30,000 based on customer satisfaction scores and successful project implementations. Whereas, a direct sales rep in the same company might have a higher commission rate and a different bonus structure tied directly to closing new business. This role-specific strategy ensures that each team member is incentivized according to their specific contributions to the sales process.

The bottom line on choosing a sales compensation plan structure

Your sales compensation plan is directly linked to organizational performance, making it a complicated yet crucial undertaking. But designing and implementing an effective plan with the right tools and expertise is possible.

Frequently asked questions on compensation plans

What’s the difference between sales incentives and sales compensation?

While sales compensation and sales incentives both refer to rewards companies use to motivate sales teams, the difference between the two is that sales compensation is a type of monetary incentive (it refers to the structure of the sales compensation plan and its components), while sales incentives (generally) are one component of a sales compensation plan, variable, and can be both monetary or non-monetary.

What is the difference between compensation and commission?

Compensation is the fixed amount of money an employee generally receives for performing specific job duties. Commissions, on the other hand, are performance-based payments. Companies pay commission on a percentage of revenue an individual generates.

With a sales compensation plan, a sales person may receive a base salary and additional pay for meeting or exceeding their sales quota.

However, a commission, specifically, is a percentage of the total amount of sales generated and is paid on every deal. So, for example, if you earn 3% on all sales generated, you'd earn $300 on a $10,000 sale.

What is a typical bonus structure for sales?

Typical bonus structures are based on some sort of individual performance metric for the period (e.g. sales, sales volume, etc.). These bonuses can be paid out as a fixed lump sum or a commission rate on sales.  

There may also be team-based bonuses, offering an aggregate performance incentive for the overall performance of the team.  

What would a typical SDR compensation structure look like?

SDR/BDR compensation requires balancing compensating the team based on outcomes that are within their control as well as the quality of those outcomes down the road.  

BDR/SDR teams are usually responsible for top of funnel activities (but not closing opportunities), so important to ensure that they’re growing the funnel, but with opportunities that are sales qualified so they result in positive outcomes for the account execs and business.  

As an example, a typical comp structure might pay SDR and BDR teams on sales qualified opportunities generated (e.g. they need to source the lead and qualify it according to the businesses’ unique criteria (as tracked in their CRM). These opps are usually vetted by the account executive or sales manager responsible for the account after the hand off.  

Sometimes there may be an additional bonus incentive for the SDR/BDR if the opportunity they generated results in a closed/won deal for the business.