A sales compensation plan is a product the company sells to its own reps, and like any product it mostly gets used in ways the designer did not intend. Every plan creates behaviour; the question is whether the behaviour it creates is the one you want.
The baseline: OTE and the split
On-target earnings is base salary plus variable pay at 100% of quota. The conventional split in SaaS is 50/50 for account executives, shifting toward 60/40 or 70/30 base-heavy for roles with long cycles, technical sales or significant account management.
The split signals how much of the outcome the rep controls. A rep selling a self-serve product into inbound demand controls less than one running outbound into enterprise, and the base should reflect that. Getting this wrong produces either reps who cannot pay rent in a slow quarter or reps with no urgency.
Structure 1: Flat rate commission
A single percentage on everything closed. Ten percent of annual contract value, say, from the first dollar to the last.
Creates: simplicity. Every rep can calculate their commission in their head, which matters more than it sounds — plans reps cannot calculate do not motivate.
Problem: no acceleration means no reason to exceed quota. A rep who hits target in month two of the quarter has every incentive to push the next deal into the following period.
Fits: early-stage teams, high-volume transactional sales, and any situation where the plan needs to be explained in one sentence.
Structure 2: Tiered accelerators
The commission rate rises as the rep passes thresholds. Eight percent to quota, twelve percent from 100% to 150%, eighteen percent above that.
Creates: strong motivation at the top end. The best reps earn disproportionately, which is usually what you want, since top performers in SaaS sales frequently produce several times the median.
Problem: sandbagging. A rep who will not reach the next tier this quarter has an incentive to hold deals for next quarter where they will count toward an accelerator. Quarterly rather than annual measurement makes this worse.
Fits: most mid-market and enterprise SaaS teams. This is the default for good reason.
Structure 3: Multipliers on deal quality
A base rate adjusted by characteristics of the deal: higher for annual prepay, higher for multi-year, lower for heavy discounting, higher for a target-profile account.
Creates: exactly the deal shape the business needs. If cash matters, pay more for prepayment and reps will ask for it. If churn in one segment is killing you, pay less for deals in it.
Problem: complexity. Every multiplier is a rule to administer and an argument to have. Three multipliers is usually the practical limit before reps stop modelling their own earnings.
Fits: companies with a specific, identified problem — cash, discounting, segment mix — that the plan should solve.
Structure 4: Gates and kickers
A threshold that must be met before commission is paid at all, or a bonus for hitting a secondary objective. Common gates: minimum number of new logos, minimum activity, a retention requirement on prior-year accounts.
Creates: focus on something that would otherwise be ignored.
Problem: gates are blunt, and a rep who misses the gate by one unit loses everything, which produces desperate behaviour in the final week. Prefer kickers — additional payment for hitting the objective — over gates that withhold core earnings.
What the plan should pay on
The measurement base matters as much as the structure.
- Annual contract value — the usual choice. Simple, aligns with how the business reports growth.
- Total contract value — pays more for multi-year deals in the year they close. Expensive in cash terms and can over-reward a single large deal.
- First-year cash collected — strongly aligns reps with cash flow. Useful for capital-constrained companies and unpopular with reps.
- Gross margin — rare, but sensible where services content varies a lot by deal.
Whatever you choose, make sure it is consistent with how the company thinks about growth. A plan paying on TCV in a business reporting ARR growth will produce deals the board does not value.
Clawbacks and the early-churn problem
If a customer cancels in month two, the rep has been paid for revenue the company never received. Clawback provisions address this and are standard, but they are also the single most resented clause in most plans.
Reasonable practice: claw back commission on cancellations within 90 to 180 days, apply it against future commission rather than demanding repayment, and exempt cancellations caused by product failure or implementation problems outside the rep’s control. A clawback that punishes a rep for a bad onboarding handoff destroys trust in the entire plan.
Ramp, quota and the first six months
New reps should carry a reduced quota during ramp — commonly 25% in month one through three, 50% in month four, 75% in month five, full from month six, though the curve should match your actual sales cycle. A rep selling a product with a 120-day cycle cannot produce in month two regardless of talent.
Pay a ramp guarantee during this period, typically 60–80% of target variable. Without it, you lose good reps in month four, which is the most expensive possible time to lose them.
Quota setting, which matters more than structure
No commission structure saves a plan built on an unachievable quota. The usual sanity check is that 60–70% of the team should reach target in a normal year. If only 20% do, the quota is wrong and the plan is demotivating whatever its mechanics. If 95% do, the quota is too low and you are overpaying for average performance.
Build quota bottom-up from pipeline capacity, win rate and average deal size, then cross-check against what the plan implies about the magic number. A quota that only works if win rates double is a budget, not a plan.
Rules that prevent most of the arguments
Write these down before the quarter starts, not when the dispute arrives.
- What counts as closed. Signed contract, countersigned, or payment received. Pick one.
- How split deals work when two reps touch an account, and who decides.
- What happens to a deal in flight when a rep leaves. Most plans pay commission on deals closed before the last day and nothing after; say so explicitly.
- How expansion and renewal are treated if AEs also own existing accounts.
- Who adjudicates. One named person, with a stated appeal route.
Changing a plan
Plans should change annually and almost never mid-year. Mid-year changes, even favourable ones, signal instability and cause good reps to start taking calls from recruiters.
When you do change it, model every rep’s prior year against the new plan before announcing. If a strong performer would have earned materially less, either the plan is wrong or you need a transition arrangement. Discovering this after the announcement is a bad way to spend a quarter.
Frequently asked questions
What is a typical SaaS commission rate?
Ten percent of annual contract value is the common reference point for account executives, varying with the base-to-variable split and deal size. The rate matters less than whether total earnings at quota equal a competitive OTE.
Should SDRs be on commission?
Usually a 70/30 or 80/20 split paid on qualified meetings that convert to opportunities, rather than on meetings booked. Paying on meetings booked reliably produces meetings nobody wanted.
Monthly or quarterly commission payments?
Monthly payment of earned commission with quarterly accelerator true-ups is the most common arrangement, and reps strongly prefer it to quarterly-only payment.
Should customer success carry commission?
If they own expansion or renewal outcomes, yes — typically a smaller variable component than sales. If they are purely support-oriented, a bonus tied to retention works better than commission.
