Commission plans are the single most powerful lever finance and revenue operations teams have to influence sales behavior. Yet many organizations still rely on plans that were cobbled together years ago, patched with ad hoc adjustments, and never pressure-tested against current business objectives. The result is misaligned incentives, unpredictable commission expense, and reps who game the system rather than sell strategically.

This guide walks through a structured approach to designing commission plans that actually work, from defining your objectives to choosing the right mechanics and stress-testing before rollout.

Start with Business Objectives, Not Pay Mechanics

The most common mistake in commission design is jumping straight to rates and accelerators. Before you touch a spreadsheet, align your leadership team on what the plan needs to accomplish.

Key Questions to Answer First

  • What is the primary growth motion? New logo acquisition, expansion within existing accounts, or a blend of both?
  • Which products or segments matter most? Are there strategic product lines that need extra push, or is the portfolio relatively uniform?
  • What is the acceptable cost of sale? Express this as commission expense as a percentage of revenue or gross profit.
  • How mature is the sales organization? Early-stage teams need simpler plans; mature organizations can handle more complexity.

Document these answers explicitly. They become the guardrails for every design decision that follows.

Choosing Your Plan Architecture

Commission plans generally fall into a few structural categories. Each has trade-offs that map to different business contexts.

Straight Commission (Revenue Share)

Reps earn a fixed percentage of every dollar they close. This structure is simple and self-funding, but it provides no base salary stability and can lead to short-term thinking.

Best for: Independent contractor models, transactional sales with short cycles, or businesses with highly variable deal sizes where you want pay to scale linearly.

Base Plus Commission with Quota

Reps receive a base salary and earn commission on attainment against a quota target. This is the most common structure in B2B SaaS and enterprise sales.

Best for: Organizations that want to balance rep stability with performance incentives, especially when sales cycles are longer and deal values are higher.

Tiered or Accelerated Commission

Commission rates increase as reps exceed quota thresholds. For example, 10% on the first 100% of quota, 15% from 100% to 150%, and 20% above 150%.

Best for: Companies that want to disproportionately reward top performers and create a meaningful gap between average and exceptional results.

Draw Against Commission

Reps receive a guaranteed draw (essentially a loan) that is repaid from future commissions. This can be recoverable or non-recoverable.

Best for: New hire ramp periods, seasonal businesses, or markets where pipeline build takes significant time before deals close.

The Five Components of a Well-Designed Plan

Regardless of the architecture you choose, every effective commission plan needs these five elements clearly defined.

1. On-Target Earnings (OTE)

Define total compensation at 100% quota attainment. OTE should be competitive for the role, market, and experience level. A typical split for a mid-market Account Executive is 50/50 (base to variable), while enterprise roles often skew 60/40 or even 70/30.

2. Quota Assignment

Quota must be achievable but stretching. A good rule of thumb is that 60-70% of your sales team should be able to hit quota in a given period. If attainment is significantly higher, quotas are too soft. If fewer than half are hitting, the plan is demoralizing rather than motivating.

3. Commission Rate and Mechanics

Define how dollars earned map to dollars paid. Be explicit about the crediting rules: when is a deal considered “closed”? Is it at contract signature, first invoice, or first payment received? Ambiguity here creates disputes and erodes trust.

4. Accelerators and Decelerators

Accelerators reward overperformance; decelerators reduce rates for underperformance. Use accelerators generously for strategic behaviors you want to encourage. Use decelerators sparingly, as they can feel punitive and drive attrition.

5. Clawback and Recovery Provisions

Define what happens when a deal churns within a specified window (typically 3-12 months). Clawbacks protect the company from paying commission on revenue that never materializes, but they need to be communicated clearly at the outset.

Stress-Testing Your Plan Design

Before rolling out a new plan, run it through several validation exercises.

Historical Back-Testing

Apply the new plan mechanics to the last 12-24 months of actual deal data. Calculate what every rep would have earned under the new structure. Look for anomalies: does the top performer earn significantly more or less? Does the average rep’s pay change dramatically?

Scenario Modeling

Build three scenarios: a base case (expected performance), an upside case (strong market conditions), and a downside case (missed targets across the board). For each scenario, calculate total commission expense and cost of sale. Ensure the plan is financially sustainable in all three.

Edge Case Analysis

Identify the deals and behaviors that could exploit the plan. Multi-year deals with heavy first-year weighting, deals that close on the last day of a quarter and churn immediately, split deals between reps in different roles. If you can find the loopholes, your reps will find them faster.

Common Pitfalls to Avoid

Over-Engineering the Plan

If you cannot explain the plan to a new rep in under ten minutes, it is too complex. Complexity breeds confusion, and confused reps default to selling whatever is easiest rather than what is most strategic.

Changing Plans Mid-Year

Nothing destroys trust faster than moving the goalposts. If you must make mid-year adjustments, grandfather existing pipeline under the old rules and apply new terms only to net-new opportunities.

Ignoring the Manager Layer

Frontline sales managers should have compensation plans that reinforce the behaviors you want from their teams. If reps are compensated on new logos but managers are only measured on total team revenue, you will get conflicting priorities.

Failing to Model for Ramp

New hires cannot be held to the same standard as tenured reps. Build explicit ramp schedules with reduced quotas (typically 25%, 50%, 75%, 100% over the first four months or quarters depending on your sales cycle).

Building the Plan Document

Your final commission plan should be a single, clear document that includes the plan summary and effective dates, the OTE and pay mix breakdown, quota targets and measurement period, commission rate tables with examples, crediting rules and deal eligibility criteria, accelerator and decelerator schedules, clawback provisions, and exception and dispute resolution process.

Include worked examples showing what a rep earns at 80%, 100%, and 130% attainment. Concrete numbers eliminate ambiguity and set clear expectations.

Moving Forward

Commission plan design is not a one-time exercise. The best revenue operations teams review and refine their plans annually, incorporating lessons learned from the prior year, shifts in business strategy, and competitive market data. Build a feedback loop that includes input from sales leadership, finance, and the reps themselves. When reps feel the plan is fair and transparent, they spend less time worrying about their comp and more time selling, which is exactly the outcome a well-designed plan should deliver.