Designing a Sales Compensation Plan That Drives Performance
Sales leaders face a familiar dilemma: the numbers are missed, the pipeline looks thin, and the team blames the market. But dig a little deeper, and a quieter truth often emerges — the compensation plan isn’t working.
When comp plans don’t align with business goals, they drive the wrong behaviors. Reps chase easy wins instead of strategic accounts. Discounts become the norm to close deals at quarter end. Activity goes up, but revenue outcomes stay flat.
Compensation should be a lever to guide performance. Too often, it’s an afterthought or a copy-paste of last year’s structure.
It doesn’t have to be that way. With a clear framework, sales compensation can stop being a source of frustration and start being a driver of consistent performance.
Why Compensation Planning Matters
Salespeople do what you pay them to do. If the plan rewards activity, you’ll get activity. If it rewards revenue without discipline, you’ll get sloppy deals. If it rewards the right outcomes, you’ll build a system that scales.
From our work with B2B and B2C companies, we’ve seen three truths repeat:
- Misaligned incentives cost revenue. Reps focus on short-term wins at the expense of strategic growth.
- Overly complex plans confuse. If reps can’t explain how they’re paid, they won’t be motivated by the plan.
- Underperformance before turnover. Compensation that doesn’t reward effort leads to turnover and underperformance.
Getting compensation right isn’t about spreadsheets. It’s about aligning pay with the behaviors and results that drive the business.
The Framework: Building an Effective Sales Compensation Plan
Here’s a practical structure sales leaders can use to design compensation plans that actually drive performance.
1. Start with Strategic Goals
A comp plan isn’t just about paying reps fairly. It’s about achieving business outcomes. Ask:
- Are we prioritizing new customer acquisition or account expansion?
- Do we need margin growth, or top-line volume?
- Should reps balance hunting with farming?
The compensation plan should directly reflect these answers. If your strategy is market share growth, reward new accounts. If it’s margin expansion, weight payouts toward profitability.
Misstep to avoid: Not aligning compensation with business strategy.
2. Keep It Simple and Transparent
The best plans can be explained in one page — or even one sentence. Example:
- “You earn 5% commission on gross margin dollars above quota.”
- “You get $X for every new customer, with accelerators after Y accounts.”
When plans get too complex — multiple tiers, exceptions, clawbacks — reps get confused and stop being motivated.
3. Balance Base and Variable Pay
- Too much base (80/20 split): reps get comfortable and under-hunt.
- Too much variable (20/80 split): reps burn out and turnover spikes.
The sweet spot for most B2B manufacturing sales roles: 60/40 or 70/30. Enough base for stability, enough variable to drive performance.
4. Reward the Right Behaviors
What gets measured gets done. What gets paid gets repeated. Examples:
- Want new business? Pay higher commission on first-year accounts.
- Need margin protection? Tie commission to gross profit, not revenue.
- Pushing strategic products? Add SPIFFs for those specific lines.
The danger: rewarding revenue alone leads to discounting and “easy wins.”
5. Include Accelerators and Thresholds
Motivation is rarely linear. Reps should have two levers:
- Thresholds: no payouts until minimum performance is met.
- Accelerators: higher payouts once targets are exceeded.
This creates urgency and rewards overperformance — without paying for mediocrity.
6. Review and Adjust Annually
When the market shifts or product changes, compensation must adapt. But avoid changing mid-year unless necessary. Nothing kills trust faster than moving the goalposts. Annual reviews, tied to strategic planning, keep the plan fresh and aligned.
Examples of Compensation Structures
Example 1: Margin-Focused Plan
- 65/35 base/variable split.
- Commission paid only on gross profit, not revenue.
- Accelerators for exceeding quota by 20%.
Drives reps to protect margings through pricing discipline.
Example 2: New Account Acquisition
- 70/30 split.
- Higher commission rate for first-year customers.
- SPIFFs for hitting set number of new accounts per quarter.
Builds market share and expands customer base.
Example 3: Balanced Growth
- 60/40 split.
- Mix of revenue and gross margin targets.
- Renewal bonuses on multi-year accounts.
Balances hunting, farming, and profitability.
A Real Example
We worked with a mid-sized manufacturer struggling with margin erosion. Their plan paid commission on revenue only, so reps discounted aggressively to close deals. We redesigned their plan around gross profit, with accelerators for margin targets. Within six months, average deal margin improved by 4 points, and revenue growth returned to plan. The comp plan didn’t just pay reps — it reshaped their behavior.
Key Takeaway
A sales compensation plan isn’t just about payroll. It’s a lever to align sales behavior with business strategy.
- Start with business goals.
- Keep the plan simple and transparent.
- Balance base and variable pay.
- Reward the right behaviors.
- Use accelerators and thresholds.
- Review annually.
When done right, compensation stops being a sore spot and becomes a growth engine.
At the Strategic Sales Council, we’ve seen firsthand how the right structures change outcomes. Leaders don’t need more coaching theory — they need systems and processes that drive results. The Council is where peers share real-world experiences, test frameworks, and build the accountability to make them work.
Because in sales, compensation isn’t just about money. It’s about performance.
