Sales Compensation 101: Key Components Every Sales Leader Should Understand

For many, sales compensation represents a means of paying reps through performance.

But what’s often left out is its ability to drive specific business growth by aligning sales behaviors directly with an organization’s key goals. 

When done right, we see compensation plans actually boost quota attainment, reduce turnover, and create predictable revenue outcomes. But when misaligned, they can demotivate teams, cause commission disputes, and lead to rep churn.

In fact, 90% of companies adjust their compensation plans annually, said David Cichelli, Revenue Growth Advisor at the Alexander Group. Plus, 65% of companies have lost at least one salesperson due to disputes over commissions, per our 2024 sales compensation report. 

Additionally, only 28% of reps are expected to hit their full quota—a sign that many plans fail to set realistic targets.

All of this suggests a major disconnect between the plan design, the desired outcomes, and the effect of misalignment. 

So for you, someone looking to learn more about building a comp plan with a solid foundation, we wrote the following to help. Whether you’re building a compensation plan from scratch or refining an existing structure, this guide breaks down the components every revenue leader should understand.

Key Components of a Sales Compensation Plan

First, let’s begin with the most common components of a compensation plan. Note: In QuotaPath, our Plan Builder experience includes a component library, so that you can drag and drop elements into your plan for ease in translating your unique plan to our system.

Base Salary vs. Variable Pay

A good compensation plan balances financial stability with performance-based incentives. 

Base salary, or base pay, provides security for reps, while variable pay is tied to revenue generation. 

“The mix between base salary and variable compensation often depends on the role’s risk level and control over outcomes,” said Graham Collins, our Head of Partnerships. “Typically, roles closer to revenue generation have a higher proportion of variable pay.”

According to our 2023 Compensation Trends Report:  

• SaaS Account Executives often have a 50/50 or 60/40 split between base and variable pay
• BDRs/SDRs typically have a 70/30 or 80/20 split, since their focus is lead generation rather than direct revenue.

And, of course, a tip! 

Leaders should regularly review base-to-variable ratios to ensure compensation stays competitive. Here’s a good resource from our friends at Betts Recruiting to stay afloat. 

On-Target Earnings (OTE) and Quota Setting

Next up is on-target earnings (OTE), which represents the total expected earnings if a rep hits 100% of their quota. 

To calculate your OTE follow this formula: Annual base salary + annual commission earned at 100% of quota = On-Target Earnings (OTE)

But remember that more reps are failing to hit quota than those who make it, so OTEs are drawing bigger question marks from reps than ever before. The trick is in finding a variable pay amount that ties in a realistic quota. 

To help, you can use our OTE calculator. This free tool allows you to plug in inputs tied to sales cycles, average sales price, and quota frequencies to ensure your OTEs and quotas align with industry standards.

TIP! Quota setting isn’t about making reps work harder—it’s about making revenue predictable. To fix this, analyze historical performance data, use industry benchmarks, and introduce accelerators to motivate overperformance without setting unrealistic baselines.

Commission Structures: What Works Best?

Now, let’s take a look at the types of commission structures. 

Leaders should choose a commission structure that drives the right selling behaviors while keeping compensation simple and transparent. 

Some common commission structures include:

• Flat-rate commission: A fixed percentage of every deal (e.g., 10%).
• Tiered commission: Higher rates for higher sales volumes (e.g., 8% on the first $50K, 12% beyond that).
• Accelerators: Higher commission rates once a rep surpasses quota.
• Decelerators: Reduced commission rates for underperformance or discount-heavy deals.

We’ve found that the best comp plans use tiered structures with accelerators to drive behaviors that align with business priorities and reward overperformance..

Bonuses, SPIFs, and Incentives

Most structures incorporate bonuses and SPIFs (Sales Performance Incentive Funds) as well to maintain motivation, especially during slow sales periods or when promoting specific behaviors.

Bonuses represent a one-time payout for hitting a specific goal). Meanwhile, SPIFs encompass short-term rewards such as “$500 for the first three deals closed this month”). 

You could also factor in non-monetary incentives, like exclusive events, team leaderboards, or recognition awards.

 “Not all motivation is financial. The best leaders build comp plans with incentives that go beyond commissions,” said our VP of Sales and Ops, Ryan Milligan.

SPIF Q1 Micro Report

After automating commission payouts of more than $7M in short-term incentives and accelerators for our customers, we unpacked what incentive types are most widely adopted, when, and why.

View Report

Common Challenges in Sales Compensation

We’ve already mentioned a few of the common challenges in sales compensation, such as unrealistic quotas or plans that misalign with key business objectives. 

Even the best-designed plans can face issues over time. 

Here are three common problems and how to fix them:

Low Quota Attainment

If most of your team is missing quota, your plan might be misaligned. 

We found that 90% of sales team in 2024 missed quota, many of which credited this to the volatility of the market and a failure to adjust their comp plans. 

If you’re midway through the year and have huge gaps in quota attainment, this may signal that you need to re-think some of your compensation structure. 

Compensation Disputes & Lack of Transparency

Another issue is the complexity of comp plans.

On average, it takes reps 3 to 6 months to understand how they are paid. That’s insane! This is because of how unique compensation structures are to a business. 

The harder it is for a rep to understand it, the more likely they are to distrust the entire process and leadership behind the plans. (65% of companies have lost a salesperson due to commission disputes.) 

TIP! Use commission tracking software like QuotaPath to give reps real-time earnings visibility and simplify compensation structures so that they know what to expect earnings-wise with every deal in their pipeline. 

Scaling & Territory Misalignment

And if you think comp plans get easier as the team scales, boy, have you mistaken!

In fact the reverse happens. As teams grow, territory overlaps, misaligned quotas, and outdated comp plans become big issues. 

TIPS! Adjust compensation plans mid-year based on deal data, rather than relying on outdated models Treat new territories, teams, and products as your business’s first compensation plan ever then modify as you collect more intel into the sales processes.

Final Thoughts: Make Compensation a Strategic Advantage

Start using sales compensation to drive predictable revenue and motivate your teams. 

To build an effective plan, align incentives with company goals, ensure quotas are realistic and achievable, and use transparency and real-time tracking to prevent disputes and deepen understanding.

QuotaPath helps companies track, adjust, and optimize comp plans.

Key Takeaways for Sales Leaders

1. Sales compensation plans need regular updates. 90% of companies adjust comp plans yearly (David Cichelli, Alexander Group).
2. Transparency is key. 65% of companies have lost a rep due to commission disputes (QuotaPath Sales Compensation Challenges Report).
3. Motivation drives results. Use tiered commissions, accelerators, and recognition to keep reps engaged and performing.

Want to improve your compensation strategy? Step 1: schedule time with us.