Despite the differences in roles, responsibilities, and total earnings, sales leadership incentive structures adhere to the same sales compensation philosophies as those designed for individual contributors.
Plans should be simple, logical, and fair while addressing: how much (on-target earning and pay mix), for what (quota amount and quota frequency), and how (commissions/bonuses).
Below, we go through how to set commission structures appropriate for VP of Sales, Director of Sales and Team Leads that follow our simple, logical, and fair format.
1st step: Set how much
Regardless of which leadership role you’re building a comp plan for, the first step you will take is setting the on-target earnings (OTE) and pay mix.
You’ll want to make sure these numbers follow trends based on industry, region, experience, and title. For help, we recommend checking out the Executive Compensation Guide from Betts Recruiting.
Executive Compensation Guide
Read MoreYou should also factor in their track record, company size, years of tenure at the employer, industry connections and knowledge, and method of compensation (ie: stock options).
Additionally, cite resources like ZipRecruiter, Salary.com, and Built In for up-to-date salary and OTE averages for roles like Director of Sales and Sales Team Lead. These numbers change based on who adds their info to their directory but it will give you a pretty good baseline. For instance, in June, ZipRecruiter reported that the average annual pay for a SaaS Sales Director in the U.S. is $116,198 a year. Meanwhile, Salary.com noted that in May 2023, Sales Team Leads took home an average salary of $72,607.
Once you have your OTE set, you’ll then determine your pay mix, which is the ratio of base salary to on-target commission.
Here are some common pay mixes:
Pay Mix
| Role | % Base Salary | % Variable |
|---|---|---|
| Account Exec | 50% | 50% |
| Sales Manager | 50%-60% | 50%-40% |
| Sales Director | 50%-60% | 50%-40% |
| VP of Sales/CRO | 55%-65% | 45%-35% |
| SDR | 65% | 35% |
| Account Manager | 70% | 30% |
| Customer Success Manager | 80% | 20% |
| Sales Engineer | 80% | 20% |
2nd step: Determine quota and frequency
Next, you’ll address “for what,” by determining the quota amount and quota cycle — or frequency. Below, we guide you through how to approach this based on the leadership role.
Sales Manager:
A Sales Manager typically oversees a team of between 4 and 12 reps, with an ideal size of 6 to 8 reps. Note, your team size will vary depending on the industry, complexity of sales, and rep experience.
Quota: Determine the quota by adding together the sum of the team’s quota and applying a buffer or over-assignment.
Market standards for buffers
Your buffer will correlate to your organization’s pace of growth and level of uncertainty or uncontrollable for the leader.
For example, first-line managers will likely have an 85% buffer, second-line managers, who are one line of leadership removed from the reps, like a Sales Director, have a buffer of 82%, and your next line of management, like a VP of Sales, will have a buffer of 80%.
These buffers accommodate underperforming reps, ramping reps, time off on your team, and more and lower incremental risk at each level up in the leadership hierarchy.
TIP: Make sure quotas are aligned with the overall financial model.
Team Lead:
A Team Lead can be set up on a single quota plan or a two quota plan, based on if you hold the Team Lead only to the team numbers or if you hold them to their own quota in addition to the team’s.
Because this role pulls the Team Lead in two very different directions, this role is generally considered to be a very difficult role and therefore ideally a short-term solution.
However, there are instances when having a Team Lead role makes sense.
For example, if you are just building out a sales team and have 3 reps, it would not make sense to have a fully dedicated sales leader for those 3 people. Another use case for the Team Lead role is if someone is brand new to management. By assigning them Team Lead, you ease them into a management role.
Quotas to consider:
- 2 quota model: Use when the Team Lead is responsible for
a) their team’s quota
b) and their own sales quota- Pays one commission/bonus rate on deals their team closes and a second, higher commission/bonus rate on deals the Team Lead closes.
- Pros: Clear division between rep and Manager work plus a consistent cost of sales
- Cons: Can lead to internal competition for the “best deals” between Team Lead and rep
- How to set the quotas: Decide what percentage of the Team Lead’s role will be coaching vs. selling and assign them a quota (and comp) commensurate with that ratio.
- Single quota model: Team Lead is only responsible for one quota: their team’s quota.
- Pays he same commission/bonus rate on all deals no matter who closes them.
- Pros: Team Lead can focus on the activities closing the most business, plus this eases the transition from Team Leader to pure Sales Manager
- Cons: Can be expensive for deals closed by reps and can create a model where Team Lead exclusively focuses on coaching vs. closing
- How to set the quota: Assign the Team Lead their own quota (as before), then add it to the team’s quota. Consider scaling the Lead’s quota down as the team size increases.
VP of Sales:
For VP of Sales or Chief Revenue Officer roles, we typically see two different ways in which they are measured.
The first is the financial model (the most common), and the second is based on the sum of the team’s quota.
Financial model:
- Because this role holds the responsibility of hiring, coaching, and managing the entire sales organization, it falls on the VP or CRO to structure the team in order to hit financial targets
- Note: If this position oversees other areas of the business (such as renewals), then compensation might be held to an even more overarching number
Sum of team’s quota:
- Although not as common as the financial model, the sum of team’s quota structure holds the VP or CRO’s number to the sum of the entire sales org.’s quota
- Ie: If you have 10 people on your sales team and they each have a $200K quarterly quota, the CRO or VP’s quarterly quota is $2M
How to set the quota:
- For the financial model, the quota will be the quarterly financial goal
- The sum of team’s quota, is all of the quotas of your team combined over the same time period
Quota setting frequency
The quota frequency for these roles varies, but the most common are as follows:
- Sales Manager: Generally aligned with the sales rep’s quota frequency, which will align to the average sales cycle.
- Our Sales Compensation Trends report found that teams followed a quarterly cycle 50% of the time.
- Team Lead: Almost always aligned with the sales rep’s quota frequency.
- VP of Sales/CRO: Most often a quarterly target, though occasionally an overall annual target.
3rd step: Designing the commission structure
Now, you’re ready to build the sales leadership commission structure and the triggers that indicate when the leader earns variable pay.
Check out simple, logical and fair leadership comp plan examples below.
Sales manager compensation plan: Commission with accelerator
*Most common*
This sales manager compensation plan sample is one of the most widely implemented plans and pays different commission rates based on team quota attainment within a quota period.
Key mechanics:
- Base rate
- Accelerated rate (higher commission rate once team surpasses 100% quota)
- Cliff (ensures the manager does not receive commissions until the team achieves a minimum amount of quota target, such as 50% to goal)
- Buffer (80-90% of the team’s collective quota)
Note: Leadership will have to change the commission rate on a monthly or quarterly basis to align to changes amongst the team (think: promotions, departures, hiring).
| OTE | $200,000 | |
| Pay mix | 50/50 | |
| Quota frequency | Quarterly | |
| Annual quota amount | $3.6M | |
| Quarterly team quota | $900,000 | 6 members on team |
| Buffer | 90% | |
| Manager quarterly quota | $810,000 | |
| Cliff | 50% | Manager does not earn commissions until team achieves 50% of the goal. The base rate then applies retroactively. |
| Base rate | 3.1% | |
| Accelerator | 4.63% | non-retroactive |
Team lead compensation plan: 2 quotas
This comp plan example follows the two quota model, meaning that the Team Lead has their own quota in addition to the team quota and earns a commission rate on their team’s deals and a higher rate on their own.
Key mechanics:
- Team rate (one commission rate applied to every deal from reps on the team)
- Individual deal rate (one commission rate that is higher than the team rate that applies to all deals that the Team Lead closes)
| OTE | $200,000 | |
| Pay mix | 50/50 | |
| Quota frequency | Quarterly | |
| Annual quota amount | $2.8M | |
| Quarterly team quota | $700,000 | |
| Quarterly Team Lead quota | $100,000 | |
| Team deals rate | 2% | Applies to every deal that the Lead’s team brings in |
| Team Lead deals rate | 10% | Applies only to deals that the Lead brings in |
Team lead compensation plan: Single quota
This Sales Team Lead compensation plan template features one quota that’s tied to their team’s quota. This means the Team Lead earns the same commission rate on all deals no matter who closes them.
Remember, to set the quota, assign the Team Lead their own quota, then add it to the team’s quota. Consider scaling the Lead’s quota down as the team size increases.
Note: This plan can become expensive as a business because you’re rewarding both the rep and the Team Lead. However, any deal the Lead closes without rep involvement will be significantly less expensive for the business.
Key mechanic:
- One rate applicable to every deal
| OTE | $200,000 | |
| Pay mix | 50/50 | |
| Quota frequency | Quarterly | |
| Annual quota amount | $2.8M | |
| Quarterly team quota | $700,000 | |
| Quarterly Team Lead quota | $100,000 | |
| Base rate | 3% | Applies to every deal under the Lead and the reps under the Lead. |
VP of Sales Compensation Structure: Financial model
This VP of Sales compensation plan example pays a pre-determined, per attainment point bonus that’s tied to the organization’s financial modeling and progress toward the goal.
So, if your company hits 100% of the financial model, your VP of Sales earns 100% of their variable. If the company hits 89%, then the VP earns 89% of their variable.
Like the Sales Manager comp plan, we recommend implementing a cliff, or commission floor, in your VP of Sales compensation package. In the example below, once the VP reaches 70% of the quarterly target, the cliff dissolves and earnings will apply retroactively.
We also recommend including an accelerator, which would pay a higher bonus rate once the team surpasses 100% of the goal.
Note: There is no buffer listed because your organization’s financial model will likely have a buffer built in.
Key mechanics:
- Base rate bonus
- Accelerated rate (higher bonus rate once team surpasses 100% quota)
- Cliff (ensures the VP does not receive commissions until the team achieves a minimum amount of quota target, such as 50% to goal)
| OTE | $400,000 | |
| Pay mix | 60/40 | |
| Quota frequency | Quarterly | |
| Annual quota amount | $2M | |
| Quarterly team quota | $500,000 | |
| Cliff | 70% | VP of Sales does not earn bonuses until the team has reached 70% to the quarterly goal. Upon doing so, the base bonus goes into effect retroactively. |
| Base bonus rate | $300 | Applies to every percentage point of quota attained toward goal up to 100% and after the team surpasses 70% of the goal. |
| Accelerator | $450 | For every percentage point attained after team passes 100%, the VP earns an additional $450. |
Conclusion
You should be in a good spot now to begin building your sales leadership incentive plans. For additional resources, check out the following:
- Compensation Hub: Library of 20 comp plan templates for AEs and SDRs that you can customize to your business model
- What to include in your VP of Sales compensation package (Blog)
- What is considered a good quota attainment rate (Blog)
- How I hired my first salesperson — A Startup Story (Blog)
Ready to automate sales compensation management? Sign up for a free 30-day trial of QuotaPath, sync your CRM or deal source of truth, and invite team members to run commission payouts by your next pay cycle.
Ready to automate sales compensation management?
Sign up for a free 30-day trial of QuotaPath, sync your CRM or deal source of truth, and invite team members to run commission payouts by your next pay cycle.
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