Primary Elements
- Structure the Core Comp PackageA well-designed comp plan motivates performance, aligns rep incentives with company goals, and helps you recruit and retain top sales talent.
- The three primary elements: base salary (guaranteed), commission (quota-based), and equity (stock options or RSUs)
- A 60/40 base-to-variable split is standard for quota-carrying roles at early stage
- OTE (On Target Earnings) = base + commission at 100% quota attainment — this is the number candidates compare
- Benchmark OTE against market data for your geography, company stage, and deal size to stay competitive
Setting OTE and Base
- Determine the Right OTEOTE and quota must be calibrated together — the right ratio ensures reps are motivated to perform without creating unsustainable payouts.
- Set OTE based on your sales motion: land-and-expand vs. full-cycle sales typically demand different OTE structures
- Apply the standard 4–5x OTE-to-quota ratio: if OTE is $250K, quota should be $1–1.25M
- Validate the quota is achievable — a quota too far above market rate at your stage will drive attrition
- Review and reset quota annually based on actual attainment data and changes in your sales motion
- Calibrate the Base/Commission MixThe base/commission ratio should reflect how much of the rep's success depends on their individual effort vs. company-generated pipeline.
- Early stage: higher base (60–70%) is appropriate when the motion is still being defined and quota is harder to predict
- As the motion matures and pipeline becomes more predictable, shift toward a 50/50 split to increase upside
- Higher-ACV enterprise roles typically carry more base relative to variable than transactional SMB roles
- Avoid commission-heavy plans at early stage — reps will churn if they can't cover their cost of living in slow months
Guardrails
- Watch for Large WindfallsA single outsized deal can trigger accelerator payouts that cost far more than planned — design guardrails before they become necessary.
- Model the payout for a deal 3–5x larger than quota to understand your maximum liability
- Include a cap, kicker structure, or SVP approval requirement for deals that exceed a defined threshold
- Discuss windfall scenarios with your finance team and board before they occur — not after a $4M deal closes
- Document the guardrail policy in the commission plan so reps understand the rules before they sign
- Use Accelerators and DeceleratorsAccelerators and decelerators reward overperformance and create consequences for underperformance — both are essential for a fair, motivating plan.
- Accelerator example: 110% attainment earns 120% of target commission — rewards overperformance meaningfully
- Decelerator example: 70% attainment earns 60% payout — discourages accepting poor-fit deals to hit short-term numbers
- Define clear attainment tiers (0–70%, 70–100%, 100–120%, 120%+) with specific payout percentages
- Review accelerator and decelerator effectiveness annually — adjust if the incentive isn't driving the behavior you want
- Incentivize Multi-Year Deals and ExpansionHow you comp on multi-year contracts and expansion significantly affects which deals reps prioritize — design these rules intentionally.
- Define how multi-year deals count toward quota: full TCV, year-one ACV, or a combination
- Decide whether expansion is handled by the same rep or a CS/expansion team — and document the comp split
- Create specific incentives for multi-year commitments: higher commission rate or accelerator for 2+ year deals
- Document all scenarios in writing so there are no disputes when a large multi-year or expansion deal closes