Compensation plan: Structure, components, and best practices

Definition

A compensation plan is a structured framework that defines how employees are financially rewarded for their contributions, including base salary, variable pay, commissions, bonuses, accelerators, stock options, and non-cash incentives.

‍

For revenue teams (sales, SDRs, CS, channel), the comp plan is sort of like a behavioral design system as it directly shapes how they sell, what they prioritize, and how fast you grow.

What goes into a modern sales compensation plan

Component	Description	Example
Base salary	Fixed monthly/annual income	₹15L per year
On-Target Earnings (OTE)	Base + variable if 100% of quota is met	₹15L base + ₹15L variable = ₹30L OTE
Quota	Sales goal over a time period	₹2Cr ARR per year
Commission rate	Percentage of revenue earned	10% of new ARR
Accelerators	Higher rate after quota is met	10% → 15% after ₹2Cr ARR
Clawbacks	Revenue lost = commission reversed	Churn within 90 days triggers clawback
SPIFFs	Short-term bonus incentives for focus areas	₹50K for closing a deal in BFSI this month

2025 trend: AI in compensation planning

Dynamic quota setting: Based on rep history, territory potential, and lead intent signals
Commission forecasting: Predicts individual and team payout risk based on pipeline and stage velocity
Error detection: Flags data anomalies in CRM vs. comp tool before payroll hits
Scenario modeling: CROs test changes to comp structure (e.g., increasing expansion incentives) using sandboxed revenue simulations

Compensation plans by GTM role

Role	Comp Plan Focus
AE (Account Executive)	New revenue closed, often with accelerators and tiered rates
SDR (Sales Development Rep)	Meetings booked, opps created, sometimes pipeline generated
CSM (Customer Success Manager)	Retention rate (GRR), Net Revenue Retention (NRR), upsells
Partnerships/Channel	Partner-sourced revenue, deal registration volume, activation rate
Sales Engineers	Team quota influence, win rate, deal support satisfaction
RevOps	Usually on bonus plans tied to forecast accuracy, enablement ROI, or tool adoption

Key principles of great compensation plans

Principle	Why it matters
Simplicity	Reps should be able to calculate commissions in their head
Alignment	Comp should support company-wide goals (e.g., land-and-expand, multi-year, AI modules)
Fairness	Territory, lead quality, and quota size must match effort
Transparency	Payouts and performance tracking must be real-time or near real-time
Timeliness	Commission delays kill motivation, so pay fast and accurately

Common pitfalls to avoid

Overcomplicating (too many tiers, exceptions, or “black box” logic)
Misaligned incentives (e.g., rewarding bookings when collections are critical)
Territory unfairness (stacked quotas on cold regions)
No incentives for collaboration (zero comp on co-selling or cross-function wins)
One-size-fits-all plans (SDRs ≠ AEs ≠ CS)

Final takeaway

A compensation plan is your GTM engine’s steering wheel. If it’s misaligned, confusing, or slow to reward, your best reps will leave, and your revenue goals will stall. When built right, it becomes a flywheel for performance, focus, and culture, turning strategy into execution.

GPT prompt: Design a comp plan for enterprise AEs

Copy

Act as a VP of Sales / RevOps at a [stage] [ARR or revenue size] SaaS company. Design a compensation plan for [insert role-e.g., Enterprise AE, SDR, Channel Manager, CSM] targeting a [insert annual quota or performance metric-e.g., $1M new ARR, 50 SQLs/month, 110% net retention]. Include: Base vs. variable structure Commission rates or bonus logic Accelerators for overachievement Clawback conditions for churn or cancellations Rules for multi-year deals, renewals, or upsells (if relevant) Special considerations for [insert- e.g., new hire ramp, geo-based differences, team vs. individual targets]

other resources

Blogs

Podcasts