You may pay sales reps much differently than other members of your organization, partly due to how closely their individual performance affects each month’s paycheck. Whether you choose a straight salary, commission-based, or profit-sharing approach, how you compensate your reps directly affects your business's bottom line. Therefore, getting it right and adjusting your compensation plan is essential to keep your company moving forward.

How can you know which plan works best for your business? We’ve broken down the differences, showing how eight common sales compensation plans contribute to your business’ revenue goals. 

What Is a Sales Compensation Plan?

A sales compensation plan is a structured approach to paying sales reps. It outlines the methods and rates used to calculate pay, including base salary, sales commissions, and bonuses. 

Sales managers use the plan to determine how each rep is paid based on performance, experience, and other metrics. Comp plans may include:

• Base salary: Fixed compensation paid to reps no matter how they perform. It can be an hourly wage but is more often a monthly or annual salary.
• Commission: Variable compensation based on a rep's performance, typically a set amount for each sale or conversion. 
• Incentives: Rewards for particular activities, such as lead generation or customer satisfaction. They may include cash or non-cash rewards, including time off and gift cards.
• Bonuses: Additional payments that come from achieving goals, including referring new clients or exceeding sales quotas. They’re typically cash earnings. 
• SPIFFs: Short for Sales Performance Incentive Fund Formula, this type of compensation features special, time-sensitive promotions where reps are compensated for certain behaviors.

Sales leaders can also use accelerators (increased commissions for exceeding goals) or decelerators (reduced commissions for underperforming). The mix of incentives, goals, and measurements is what forms the compensation plan. 

Example of a Compensation Plan

Here is what a plan for a rep might look like:

• Base Salary: $45,000 per year
• Commission: 8% of sales revenue
• Annual Bonus: $10,000 for exceeding annual sales target by 10%
• SPIFF: $500 for every 20 units of a specific product sold within the summer months

Compensation plans can change often and can vary by rep, department, and sales territory.

The Importance of a Well-Designed Sales Compensation Plan

The right compensation plan rewards your sales reps in the best way possible while balancing the company’s needs. Benefits include:

• Alignment with the company’s goals: Organizations can decide what behaviors to reward based on business goals and then create the plan that’s most likely to promote change — for example, creating a higher commission rate for larger deals if the business goal is to increase average deal size. 
• Boosting team morale and retention: Competitive compensation plans attract and retain top performers by providing clear financial incentives, recognition for exceptional performance, and tangible rewards that validate reps' contributions. This creates a positive feedback loop where success is celebrated and rewarded, leading to increased job satisfaction and longer tenures. 
• Ensure competitiveness in the marketplace: A strategic sales compensation plan maintains a competitive edge through industry-leading commission rates, bonuses, and accelerators, ensuring you can attract and retain top sales talent who consistently drive revenue growth.  

8 Sales Compensation Plan Examples

Managers can take many approaches to creating a plan that is tailored to their reps and the organization. Below we explore the most common plans, including when they work best and any potential drawbacks. 

1. Straight Salary

A straight salary compensation plan is just what it sounds like: Reps get a set salary per month or year that doesn’t change based on performance. It doesn’t include additional payment types like bonuses or commissions, but it can include typical employee benefits. An example would be a sales professional who earns a $55,000-a-year salary but doesn’t get paid extra for each sale made. 

Advantages: 

• Reps can count on pay each month and more easily plan their personal budgets.
• Managers don’t have to spend more time tracking or managing payments.
• Reps may feel that pay is more equitable and experience less team tension.

Drawbacks:

• It may be hard to motivate reps to perform better without additional perks.
• No possibility of bonuses could cause reps to leave for higher-paying companies. 

Best for: Sales support staff and those in administrative roles who don’t have the opportunity to earn extra through commissions. 

2. Salary Plus Commission

A salary plus commission sales compensation plan combines a fixed base salary with additional variable pay based on set goals, quotas, or other performance measurements. 

For example, a sales rep could earn a $50,000-a-year salary while being eligible for additional SPIFFs, conversion commissions, and referral bonuses for each new lead they acquire. 

Advantages: 

• Reps receive a stable income while still getting extra pay for high performance.
• It may be easier to motivate and retain reps through bonuses, SPIFFs, and commissions, allowing for additional earnings based on performance.
• The mix of compensation types gives managers flexibility in creating customized plans. 

Drawbacks:

• The plan may be difficult to set up and manage compared to a straight salary plan.
• The variable income of the bonuses may be difficult for sales reps to plan around.
• Performance-based pay comes with potential additional concerns, such as an overly competitive work environment or unethical practices by reps. 

‍Best for: Sales reps who have direct control over their sales performance and who need the stability of a salary with the motivation of bonus earnings.

3. Commission Only

In a commission-only sales compensation plan, the sales rep is paid based on what they sell; there is no base salary. For example, a sales rep gets paid $100 for every software subscription they sell. 

Advantages:

• Because reps only get paid when they perform, it can motivate high-achievers.
• The lack of salary costs can keep overhead lower in times of slow sales.
• It can attract ambitious sales talent who want ownership over their work.

Drawbacks:

• Commission-only payments may deter sales reps who need more income stability.
• Slow starters may not stick around long enough to master their craft.
• Reps may go to great lengths to close deals, even at the expense of good customer service or promoting the company’s mission. 

Best for: Startups that need to manage employee costs closely or businesses that are paying independent contractors, such as real estate agents or insurance reps. 

4. Profit-Sharing Plans

A profit-sharing sales compensation plan gives sales reps a standard salary along with a portion of the company’s profit. It’s designed to reward employees for behaviors that help the company overall and not just the individual rep. 

An example would be a company that pays a sales rep $60,000 annually plus a portion of the 10% revenue share that is split among the sales team. 

Advantages:

• It promotes a team culture where employees feel responsible for the success of the organization.
• Reps looking to become a part of something bigger may be attracted to the company and stick around to see it grow.
• There may be less toxic competition between reps as they share profits. 

Drawbacks:

• The initial lower pay may not attract sales representatives who require higher upfront earnings. 
• Reps may not feel they have as much influence over their earnings as they do with commissions or compensation that is tied directly to individual performance.
• Administration may be more complex and require additional planning. 

‍Best for: Employee-owned companies that already have a shared ownership culture and startups wanting to save on upfront costs.

5. Tiered Commission Structures

In a tiered commission structure, reps earn different rates for different performance levels. As they sell more, they become eligible for higher commission rates, motivating them to close deals even after reaching quota. 

An example would be a sales rep who earns a base salary of $55,000 a year, plus a 10% commission on the first $500,000 in sales and a 15% commission on everything sold beyond that.

Advantages:

• Tiered commissions can be very motivating for the right sales rep.
• The plan fosters a culture of high performance and excellence.
• It’s scalable because companies only pay more when they generate more revenue. 

Drawbacks:

• The different tiers can be complex and more difficult to manage.
• Higher commission tiers may promote unethical sales behavior, especially as reps get closer to the cut-off. 
• Reps who repeatedly get close to the next tier without achieving it may become discouraged and unsatisfied with their jobs. 

Best for: Highly motivated sales reps in competitive industries who respond well to pressure and would be hurt by commission caps.

6. Territory Volume Incentive Compensation Plans

In a territory volume incentive plan, reps get paid based on the total sales for their assigned territory. Commission rates may be tiered, but only total volume is counted, not individual conversions. 

An example would be a sales rep earning a $55,000 base salary that gets a 5% commission on total territory sales of up to $1 million per year and an 8% commission on sales over that. 

Advantages:

• It can drive reps to maximize sales, focusing on cross-sells and upsells with existing customers.
• The plan can encourage territory growth and expansion into new markets.
• It offers a clear measurement of earnings with a less complex formula for calculating commissions. 

Drawbacks:

• The plan may not be fair for all reps, such as those with smaller, less populated, or less affluent territories. 
• It may discourage reaching out to new or less profitable customers.
• Customer service for some accounts may suffer if the rep doesn’t feel there’s room for additional earnings. 

Best for: Sales reps like regional account managers or pharmaceutical reps who cover a large territory and follow longer sales cycles with multiple touchpoints.

7. Draw Against Commission

In a draw-against-commission compensation plan, the sales rep receives some of their anticipated commission in advance of earning it so that they have a paycheck while they go through the sales cycle. 

An example would be a sales rep who is expected to make $100,000 in sales in October (as that’s their minimum quota), so they receive a check for half of the 10% commission early — in September. This gives them $5000 in income before they’ve even earned it. 

There are two types of draws. A recoverable draw requires the rep to return any overpayments by reducing future commissions until settled. A non-recoverable draw doesn’t require the rep to pay back any deficit and may be the more secure option for sales reps. 

Advantages:

• Sales reps are guaranteed at least some income while they move a lead through the pipeline. 
• In a recoverable draw scenario, reps may work even harder to reduce a deficit so they don’t have to pay it back.

Drawbacks:

• This plan is more complex to set up and manage, as it requires very careful tracking.
• Companies may need to ask for money back from sales reps, which can strain the relationship.
• Variable income may be hard for reps to plan around. 

Best for: High-value sales reps and those in seasonal industries who will eventually make a lot on commissions but need some security during the sales cycle.

8. Equity-Based Compensation

Equity-based compensation gives reps shares of company stock as payment. It’s similar to the profit-sharing compensation plan in how it motivates employees to take ownership of the organization’s success. 

For example, a sales rep may earn a 5% commission on all sales, plus a percentage of a share of company stock for every sale they make above quota. It normally comes with a vesting schedule, so reps earn upon reaching certain milestones in their careers. 

Advantages:

• It drives long-term growth instead of promoting quick sales wins.
• Compensation may attract reps with goals and values similar to those of the company, creating a more harmonious corporate culture.
• Plans offer more flexibility for companies with limited cash flow. 

Drawbacks:

• The more complex compensation mix can be difficult to calculate and manage over time, especially as the company grows.
• Stock dilution can threaten the value built up by reps and must be managed carefully.
• Reps risk having earnings tied to market performance and may never see their earnings come to fruition.

Best for: Startups and high-growth companies that have limited liquidity and want to share their initial success with those who started on the ground floor.

How to Create a Sales Compensation Plan

Creating a sales compensation plan involves several steps, including defining objectives, setting goals, determining compensation structures, and using tools for tracking and management. 

Ready to make your team members an offer they can’t refuse? Let’s break down the process: 

Define Objectives

Your compensation plan should be designed to achieve your company's specific business goals, such as increased revenue or improved customer acquisition. Each compensation plan rewards different behaviors, making some more appropriate for certain goals. A profit-sharing plan may work better for a startup experiencing sudden growth; a draw against commission could be the better choice for a very seasonal industry where most sales occur within a few months. 

When picking a plan, consider your organization’s growth stage, sales cycle, market position, and target customers to ensure it meets your long-term objectives. 

Example: Increase revenue by 20% and acquire 100 new customers within the next fiscal year.

Identify Metrics to Track Success

Next, choose the Key Performance Indicators (KPIs) and metrics you’ll use to define success. These could be tied to sales rep behavior alone or extended to other metrics in the organization (such as customer service ratings). Make sure the metrics are something you can easily track for multiple reps.

Example: Each sales rep has a quarterly revenue target of $100,000 and a new customer target of 25.

Determine the Right Compensation Structure

Customize plans for each sales role based on responsibilities and objectives. Field reps focused on closing deals need performance-driven plans weighted toward commission, while sales VPs overseeing strategy require plans emphasizing organizational goals and team success.

Choose structures that incentivize desired behaviors and outcomes. For instance, pure commission drives rapid customer acquisition, while balanced base-plus-commission promotes both growth and account management. Blend different components to create tailored plans that align with each position's targets and priorities.

Set Competitive Benchmarks

Establish quotas, commission rates, and pay scales based on thorough market analysis. Compare industry compensation data with your internal rates to identify and address competitive gaps. When setting targets, consider factors like territory potential, market maturity, and role complexity.

If you’ve never conducted a compensation analysis, now’s the time to consider it. It’ll help you: 

• Monitor industry trends and competitor pay structures to maintain competitiveness
• Compare performance and pay across teams to ensure fairness
• Evaluate how compensation spend impacts revenue, customer retention, and quota attainment
• Use historical performance data to refine quotas and commission structures for optimal results

Communicate and Roll Out the Plan

Get your team excited about their compensation package by walking them through how their efforts directly drive company success. Break down exactly what they need to hit and how they'll be rewarded.

Make sure everyone can easily reference their plan details whenever needed, and keep your door open for questions. Some reps might be new to certain compensation structures, so schedule time to walk through examples and scenarios that bring the plan to life.

The key is ensuring that your team feels confident about earning and growing with your company. When they understand the path to success, they'll be more motivated to crush their goals.

Use Tools to Automate and Track Performance

Even if you choose the simplest compensation plan, you’ll need to ensure that reps are paid accurately and on time. More complex compensation plans, such as tiered payouts or profit-sharing, require even more attention to detail so that everyone is paid fairly. 

Compensation management software like CaptivateIQ simplifies payroll and performance measurement in both scenarios. It offers real-time monitoring of all your sales activities and connects with popular CRMs, performance tools, and payroll software.

This data-driven approach means you don’t have to wait until the end of the month to know which reps are meeting quota and which ones need more motivation to hit their goals. You can easily adjust plans on the fly for individual reps or make sweeping changes as you go.

It also automates the payment to reps, lets everyone see what they’ve earned for the week, and helps teams track progress so they know how far they are from meeting quota or hitting that next payment tier. It reduces the need to print out performance reports that no one may ever read. Instead, you’ll get access to a dashboard that shows performance results for individuals as well as teams. 

Regularly Review and Adjust 

Is your plan the right one? Only time will tell. Be prepared to monitor and update as your business scales, the team evolves, and the market shifts. 

For example, if an industry recession makes quotas unrealistic, you may have to lower your expectations. Or, if a product fails to attract the right audience, your product-based SPIFF program may need a revamp.  Likewise, if reps are consistently overperforming (and earning more than you can afford), it’s likely time to boost quotas or adjust tiers to meet your budget.

The only way to know for sure that your plan still works is to continually review the metrics, keeping an eye on those that don’t keep up with your overall business goals. Paying reps just enough to motivate them without breaking the bank requires a delicate balance.

Review your plan at least quarterly after implementation, and be honest about what you’re seeing. You may not need to scrap your plan completely — a slight adjustment may be all that’s required to get your performance back on track. 

Get Compensation Right from the Start With CaptivateIQ

Ultimately, sales reps need the security of knowing that if they perform well, they will be rewarded. Companies often have the budget for competitive pay but don’t have the right compensation plan to motivate reps and make them feel valuable.

Assessing all of your available performance data will help you make better decisions. Schedule a demo with our team to learn more about how our platform reduces administrative burden and gives reps a transparent look at their performance.