In a recent trends survey of over 300 companies, sales compensation costs are rising, and 91% of these companies are redesigning pay plans to better match performance and profits. With this trend in mind, it is smart for any organization to review and update its sales comp plan, especially those wanting to motivate their sales teams and get better results.

But where should a company start? By learning the basics. This article explains the core principles of a successful sales compensation plan, provides examples, and outlines steps to create a plan that works.

What is a sales compensation plan?

A sales compensation plan is a clear outline that explains how salespeople are paid. It typically includes a base salary, commissions on sales, and bonuses for reaching or surpassing sales goals.

The main purpose of a sales compensation plan is to motivate sales reps or salespeople to reach specific business objectives that directly contribute to the organization's success. According to the same survey mentioned above, these objectives include:

• Responsible for achieving a sales quota/territory goal/ target sales volume

• Direct customer contact

• Buyer persuasion/influence/deal closing

• Sales process involvement/time allocation

• Pre- and post-land activities (e.g., lead qualification/adoption)

• Optimize revenue spend

Making these goals turn into results requires a strong sales compensation plan. Salary.com's consultants can help design a plan that motivates your team, ties pay to performance, and rewards the actions that drive sales and grow your business.

Sales compensation plan examples

Here are some common examples of sales comp plans to help you understand how they work and which might fit your organization.

1. Base salary + commission

   Base salary plus commission is the most common type of sales compensation plan because it combines steady income with incentives. Sales reps earn a base pay while working toward sales quotas, which motivates them to achieve and exceed goals.

   Pros: Provides stable income plus performance-based rewards

   Cons: Commissions can be unpredictable; external factors (like losing a key client or market downturns) may affect earnings

2. Base salary + bonus

   The base salary and bonus plan is a mix of salary and commission. It gives sales representatives a higher base pay and a bonus tied to clear goals that support the sales strategy, so they know what they can earn. Bonuses may cover more than just individual sales.

   Facing Critical Compensation Challenges?

   Unlock success with our Compensation Consulting services.

   Schedule a consult

   Pros: Provides stable income with additional incentives

   Cons: May not directly reward individual sales performance; requires careful goal-setting to avoid confusion

3. Commission only

   As the name suggests, a commission-only plan pays sales reps entirely based on the sales they make. This plan may save the employer money if quotas are not met and can attract top sales talent while motivating them to focus on sales performance.

   Pros: High earning potential for top sales professionals

   Cons: No guaranteed income; may discourage less experienced or cautious sales reps

4. Salary only

   While a salary-only compensation plan is uncommon in sales, it gives employers predictable costs and sales talent a stable income. However, it does not include performance-based incentives, which can make it less motivating.

   Pros: Provides stable, fixed base salary for sales talent

   Cons: Lacks performance-based incentives; may not motivate top performers

How to develop a sales compensation plan

Experts from SHRM recommend the following steps when designing sales compensation plans:

1. Form the design team: Create a team to develop the plan.

2. Clarify the purpose: Decide why incentives are being introduced or changed.

3. Gather input: Ask stakeholders, sales managers, and sales reps for feedback.

4. Align with business goals: Make sure sales goals match the company's strategy.

5. Understand sales roles: Identify key responsibilities, success factors, and links with marketing and service.

6. Check market pay: Research industry pay levels and trends.

7. Design the plan: Set target pay, incentives, mix of base and variable pay, and performance measures.

8. Set role specifics: Decide eligibility, target cash, and pay mix for each role.

9. Estimate costs and payouts: Calculate total program costs and potential payouts.

10. Set quotas: Assign targets by territory and role.

11. Approve the plan: Get sign-off from key stakeholders and the CEO.

12. Implement the plan: Create a timeline for communication, training, system updates, and rollout.

Designing an effective sales compensation plan from scratch can be complex, which is why having experts handle it can make a big difference. Salary.com consultants help tie pay to results, focus on key activities, manage costs, and create incentives that motivate top performers.

FAQs

Here are some common questions about sales comp plans:

How does sales compensation work?

Sales compensation works by rewarding sales employees for reaching goals like making sales, keeping customers, or gaining new ones. It typically combines a base salary with performance-based incentive pay based on the role and effort.

Clear sales targets and rules show how actions translate into pay, and the plan is guided by a pay philosophy that links pay to business goals, sets pay levels, and defines when incentives are paid.

What is a 70 30 split in sales?

A 70-30 split in sales means 70% of a salesperson's pay is a fixed salary and 30% comes from performance-based incentives. This is often used for roles with less influence over sales or where steady performance is important. The total of salary plus incentives is called the on-target earnings (OTE).

How often should you regularly review your sales comp plans?

WorldatWork recommends reviewing salary ranges, merit budgets, and incentive plans once a year, so sales comp plans should also be reviewed annually. In some cases, a semiannual review can help respond faster to market changes, pay compression, or performance needs.

What is the difference between a sales comp plan and a commission plan?

The difference between a sales comp plan and a commission plan is that the former covers all pay and incentives for a sales employee, including salary, bonuses, and commissions, while the latter only pays based on the sales the employee makes.

What questions into consideration when planning a sales comp plan?

Compensation experts suggest using these key questions as the foundation when planning a sales comp plan, including:

1. Will the plan be salary-only or salary plus incentive? If it includes incentives, what percentage goes to each part of total pay (TTI)?

2. Will the plan be commission-only or salary plus commission?

3. Will incentives be paid in dollars or as a percentage of salary or revenue?

4. How will the plan meet the company's financial goals?

5. Does the plan meet the needs of the company?

6. Is the plan competitive in the market?

7. Does it support business growth and higher profits?