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The Art of Motivation: Designing Sales Compensation Plans That Drive Results

The Art of Motivation: Designing Sales Compensation Plans That Drive Results

Designing an effective sales compensation plan is critical to any successful sales organization. A well-crafted plan motivates your sales team, drives revenue growth, and aligns the interests of both the company and the sales representatives. 

It’s essential to understand the impact of compensation on salespeople. Sales reps are highly motivated by money, and their income is directly tied to their performance. Incentives such as bonuses, commissions, and accelerators can all play a key role in driving sales performance. However, these incentives can have unintended consequences if not implemented correctly.

This blog post will explore various aspects of creating a successful sales compensation plan, including setting quotas, selecting base and variable pay, using accelerators, and employing rewards and contests. We’ll also discuss strategies for designing effective compensation plans for different types of sales roles and tips for continuously improving your compensation plan.


Quotas are performance targets set for sales representatives and are crucial in a sales compensation plan. You must establish the correct quotas to motivate your sales team and drive growth. When setting quotas, consider the following factors:

  1. Market potential: Conduct market research to determine the potential revenue for your products or services. Use this information to establish realistic quotas that align with the addressable market size.
  2. Historical performance: Analyze the sales team’s past performance to set attainable quotas that align with their capabilities. Consider the average deal size, win rates, and sales cycle length.
  3. Growth targets: Set quotas that support the company’s revenue growth goals. Ensure that quotas reflect the desired growth rate and are evenly distributed among sales representatives.
  4. Individual capabilities: Consider each sales representative’s skills, experience, and territory when setting their quota. Tailor quotas to match unique strengths and market opportunities.

Base and Variable Pay

A sales compensation plan typically consists of base pay and variable pay. Together, base and variable pay comprise a salesperson’s On-Target-Earnings (OTE) when they achieve 100% of the quota. 

Base pay is a sales representative’s fixed salary, while variable pay is the commission earned based on performance. The right balance between base and variable pay depends on various factors, such as the sales cycle, market conditions, and the level of control sales representatives have over outcomes.

Different sales roles require tailored compensation plans to ensure they are appropriately motivated and rewarded for their unique responsibilities and goals. 

  • Account executives: For account executives focused on acquiring new business, consider a higher variable pay component to reward recent customer acquisition and incentivize them to bring in more revenue.
  • Account managers: For account managers focused on maintaining and expanding existing customer relationships, consider a higher base pay with variable pay tied to customer satisfaction, retention, and upsell opportunities.
  • Sales development representatives: For sales development representatives focused on lead generation and appointment setting, consider a combination of base pay and variable pay tied to the number of qualified leads generated and meetings scheduled.

For most business-to-business (B2B) sales plans, the best mix between base and variable pay is 50/50. However, the sales manager should determine the ideal pay mix for your sales team by considering factors such as job responsibilities, industry standards, and the company’s financial goals. For example, a higher base pay may be appropriate for sales roles with longer sales cycles, while a higher variable pay may be suitable for roles with shorter cycles and more control over outcomes.

When faced with a long sales cycle, you can still create a 50/50 plan if you reward essential activity that is not revenue based with MBOs, as discussed below.

A 50/50 approach provides sales representatives financial stability while offering robust performance incentives. It also offers the following benefits:

  1. Attracts motivated salespeople: A 50/50 compensation plan is attractive to salespeople who are motivated to earn more money based on their sales performance. It also allows salespeople to see a direct correlation between their efforts and earnings.
  2. Provides financial stability: A fixed base salary in a 50/50 compensation plan offers financial stability to salespeople, even if they have a slow month or quarter. It ensures that they have a steady income while they work to increase their sales.
  3. Incentivizes sales performance: The variable commission portion of a 50/50 compensation plan incentivizes sales performance. The more sales a salesperson makes, the more money they earn. This motivates salespeople to work harder and achieve better results.
  4. Aligns sales goals with company goals: A 50/50 compensation plan aligns the salesperson’s goals with the company’s goals. The salesperson wants to earn more money, and the company wants to increase sales revenue. The plan encourages salespeople to work towards achieving the company’s goals.
  5. Helps control costs: The fixed base salary in a 50/50 compensation plan helps the company control costs. The company can budget for the fixed salary and project additional costs based on sales performance. This allows the company to manage costs more effectively.

Overall, a 50/50 compensation plan can effectively motivate salespeople to achieve better results while providing financial stability and helping companies control costs.

Caps on Commissions

Avoid placing caps on commissions, as they can discourage sales representatives from pursuing deals once they reach their quota. Instead, implement accelerators to motivate them to continue selling and generate more revenue for the company.

Caps on commissions can be incredibly demotivating for salespeople and significantly negatively impact revenue. Capping a salesperson is telling that salesperson that no matter how hard or successful they work, they will only be paid up to a certain point. This mixed message creates a situation where the salesperson may feel like there is no point in continuing to work hard once they have hit their cap since there is no financial reward for any additional sales they make. This can lead to a significant decrease in motivation and cause the salesperson to become complacent and stop putting in the effort required to make sales.

In addition to demotivating salespeople, caps on commissions can also hurt revenue. Capped salespeople may be less likely to close deals quickly or push for more significant sales since they know there is no reward. This bad behavior can lead to a decrease in the number of sales made and can also lead to smaller sales than would have been possible if the salesperson was not capped. Ultimately, this can result in a decrease in revenue, which can damage any business.

Caps on commissions will also encourage a salesperson to slow down a deal. In most cases, a salesperson cannot force a prospect to purchase before they are ready but can almost always slow a prospect’s purchase. All the salesperson has to do is delay each meeting for a couple of days or weeks. By doing this several times, the opportunity doesn’t close in November or December. Instead, it closes in January when the salesperson is at 0% for the year, and the caps no longer affect the commission.

Overall, caps on commissions can be incredibly harmful to salespeople and the business. By demotivating salespeople and limiting their financial rewards, caps can cause salespeople to become complacent and stop putting in the effort required to make sales. This can lead to a decrease in the number and size of deals, ultimately reducing revenue. As such, it is crucial for businesses to consider the negative impacts of caps on commissions and to avoid using them wherever possible.

Accelerators drive great behavior

Accelerators are additional incentives provided to sales representatives for exceeding their quotas. They motivate top performers and encourage sales representatives to close deals quickly. By rewarding overachievement, accelerators can help create a high-performance sales culture.

  • Accelerator tiers: Create different tiers of accelerators to reward sales representatives for exceeding various levels of their quotas. For example, offer increased commission rates for achieving 125%, 150%, and 200% of the quota. This can drive continuous improvement and maintain motivation throughout the year.
  • Accelerator cliffs: An accelerator cliff appears when the commission paid at the end of a period (December) when the salesperson is at a high commission rate is significantly more than the new period (January) when the accelerator is not in place. This creates a sense of urgency for sales representatives, who know their earnings potential will significantly increase if they surpass their quota. Implementing accelerator cliffs, which significantly increase the commission rate once a sales representative exceeds their quota, can encourage them to close deals before the end of the fiscal year or quarter, ensuring revenue growth.

When designing a sales compensation plan, it’s essential to consider the different types of accelerators that can be used. For example, some sales plans may offer a higher commission rate for sales closed early in the year, while others may offer a higher commission rate for deals closed later in the year. It’s important to consider what will motivate your sales reps and drive the most revenue for your business.


In addition to commission plans, accelerators, and sales contests, another effective way to motivate and incentivize sales teams is using MBOs, or Managed by Objectives.

MBOs are a management technique where a manager and employee agree on specific objectives to be achieved within a certain time frame. These objectives are then used to measure the employee’s performance and determine whether or not they have met their goals.

MBOs in sales teams are becoming increasingly popular as it allows managers to align the company’s objectives with the sales team’s goals. By setting clear and specific objectives, sales reps are given a clear path to success and can focus their efforts on achieving them.

MBOs also help to foster a culture of accountability and responsibility, as each sales rep is responsible for meeting their objectives. This can lead to increased motivation and productivity as reps feel a sense of ownership and pride in their work.

To effectively implement MBOs, setting specific, measurable, attainable, relevant, and time-bound objectives is crucial. This means that the objectives should be clear, easily quantifiable, achievable within the given time frame, aligned with the company’s goals, and have a clear deadline for completion.

It is also vital to ensure that the objectives are aligned with the sales rep’s strengths and abilities and that they have the necessary resources and support to achieve their goals. Regular check-ins and progress reviews should be conducted to ensure that reps are on track to meet their objectives and to provide feedback and support as needed.

In addition to setting individual MBOs, it can also be effective to set team-wide objectives. This can foster camaraderie and teamwork as reps work together to achieve a common goal. It also allows for sharing best practices and collaboration, which can lead to increased innovation and creativity.

MBOs can effectively motivate and incentivize sales teams, increasing productivity, accountability, and success. By setting clear and specific objectives, sales reps are given a clear path to success. They can focus their efforts on achieving these objectives, leading to improved performance and increased revenue for the company.

Rewards and Contests

In addition to accelerators, commissions, and MBOs, rewards and contests can be powerful motivators for sales teams. They can create excitement, drive performance, and foster a competitive spirit.

  • President’s Club: Organize an annual President’s Club trip for top-performing sales representatives. This prestigious event rewards and recognizes those who have achieved or exceeded their quotas and can inspire others to strive for similar success.
  • Sales contests: Hold regular contests to create short-term excitement and encourage specific behaviors, such as new account acquisition or upselling. Contests can be based on individual or team performance and offer various rewards, such as cash bonuses or prizes.
  • SPIFFs (Sales Performance Incentive Fund): Offer SPIFFs to incentivize sales representatives to focus on specific products, promotions, or sales activities. SPIFFs can take various forms, such as cash bonuses, gift cards, or even trophies.

Annual reviews are critical

Your business has to evolve regularly due to economic and market changes. Therefore, your compensation plan needs to evolve periodically to accommodate the changes to the company’s plan. It would help to implement an annual review of your compensation plan to ensure it always aligns with your company goals and objectives.

Regularly evaluate and adjust your sales compensation plan to ensure it remains effective and aligned with company goals. Monitor sales performance, gather feedback from sales representatives, and stay informed about industry trends to make informed adjustments.

  • Annual review: Conduct a thorough annual review of your sales compensation plan, analyzing its effectiveness and identifying areas for improvement.
  • Adjustments: Make adjustments to the plan based on performance data, feedback, and changes in the market or company strategy. Be transparent with your sales team about these changes and explain the rationale behind them.
  • Benchmarking: Stay informed about industry standards and best practices for sales compensation. Benchmark your plan against competitors and adjust as needed to remain competitive and attract top talent.

An effective sales compensation plan is crucial for motivating your sales team, driving revenue growth, and aligning the interests of the company and its sales representatives. You can design a program that fosters a high-performance sales culture by considering factors such as quotas, base and variable pay, accelerators, rewards, and contests. 

Continuously evaluate and adjust your plan to ensure it remains effective and aligned with your company’s goals, and don’t hesitate to tailor compensation plans for different sales roles. With a well-crafted sales compensation plan, your sales organization will be better positioned for long-term success.

Sales compensation is essential to any business, as it motivates sales personnel to meet and exceed targets. By offering the right incentives and rewards, you can boost your sales team to meet and exceed their targets, driving increased revenue and profitability. 

Seek assistance from experts

It is easy to create a compensation package that is hard to understand and is demotivating to your sales team. Creating a plan that hurts the company’s profitability is also easy.

I am happy to help you create a compensation plan to make you more profitable and drive more revenue. With nearly four decades of experience, I have seen tremendous and lousy compensation plans. You can contact me through this site if you have any questions or need my help. I will be happy to help you be successful.

Header Photo by RODNAE Productions

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