A sales compensation plan is a behavioral incentive system. It does not just reward performance -- it shapes what reps focus on, which deals they prioritize, which customer segments they target, and whether they bring back honest intelligence from the field or tell you what you want to hear.
Most B2B companies design compensation plans by copying industry benchmarks and adding SPIFs when results are off-track. This produces plans that are expensive, misaligned with strategy, and that reps work around rather than for.
Step 1: Define the behaviors you want to drive
Before setting a single number, write down the specific behaviors the compensation plan is supposed to produce. The plan is the mechanism -- the behaviors are the goal.
The behavior-first design process:
Ask: in 12 months, what does success look like in terms of rep behavior?
- Are you primarily trying to generate new logos or expand existing accounts?
- Are you trying to move upmarket (larger ACV, longer sales cycle) or maintain velocity at current deal size?
- Are you trying to reduce sales cycle length or improve win rate?
- Are you trying to build a specific ICP segment or expand geographic coverage?
Step 2: Set the OTE and split
On-target earnings (OTE) is the total compensation a rep earns when they hit 100% of quota. The split between base salary and variable pay signals the risk tolerance expected of the role.
OTE design principles:
- Base salary must cover minimum living costs: A rep who cannot pay their rent on their base salary will exhibit desperate selling behavior. Set the base high enough to remove financial desperation from the sales conversation.
- Variable pay must be motivating: If the variable component is too small, it does not change behavior. For most B2B field roles, variable pay of less than 30% of OTE is not compelling.
- OTE must be achievable: If fewer than 50% of your reps hit OTE in a given year, the quota or the OTE structure is wrong. An OTE that only top performers hit is not a motivating target -- it is a fantasy.
At 100% of quota, the rep earns their full OTE. Accelerators above 100% pay a higher rate on overachievement. Decelerators below 50% pay a lower rate to protect company margins.
Step 3: Design the commission structure
The commission structure determines how variable pay scales with performance. A flat commission rate from zero to unlimited is simple but does not incentivize quota achievement over volume.
Commission structure components:
Step 4: Manage the transition and communication
A compensation plan change that is communicated poorly -- or late -- is one of the fastest ways to lose your best sales reps. The best performers have the most options and will leave if they feel the change is unfair or that they were misled.
Compensation transition best practices:
Sales compensation plan completion checklist
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