Sales compensation plans involve more moving parts than almost any other area of reward design. Pay mix, target-setting, payout curves, crediting rules, performance periods – each one is its own decision.
And there’s no universal ‘right answer’ – the right pay mix for a hunter in the US looks nothing like the right mix for a renewals manager in Germany.
All of which makes sales compensation one of the hardest areas to get right.
Which explains why when Arif Ender – Director of Compensation (EMEA & LATAM) at Palo Alto Networks, Faculty Member at WorldatWork – hosted an Ask Me Anything session for the Reward Room community, he had more questions on sales compensation design than anything else.
With nearly two decades of experience designing sales comp across Mercedes-Benz, Nestlé, Mars, Meta, and Palo Alto Networks, and having trained hundreds of Reward professionals on compensation design through WorldatWork, Arif has seen what works and what doesn't across every kind of organisation.
What follows are the 10 decisions he works through every time he's reviewing or building a sales compensation plan – and where he's seen each one go wrong.
It might sound obvious, but defining which roles a sales compensation plan covers should always be your starting point.
“I’ve seen customer support, marketing, and even implementation teams shoehorned into sales compensation plans,” Arif explains, “all because someone wanted to 'align incentives’ across the organisation.”
For Arif, impact on the customer’s buying decision is the clearest differentiator – if the role isn’t vital to persuading that decision, they belong in a separate incentive or bonus plan.
"The moment you include someone who doesn't have a direct, persuasive impact on that buying decision, you've diluted the whole thing. You end up making payouts to people who weren't influencing the close."
It undermines the plan for the people it's actually designed for – when salespeople see commission going to colleagues who weren't involved in winning the deal, trust erodes fast.
Total target compensation sets the baseline for everything else.
It’s base salary, plus the total possible commission received when 100% of quota is hit – so, for instance, a £45,000 base salary plus £45,000 in target commission at 100% quota attainment gives a total target compensation of £90,000, for instance.
“Getting total compensation wrong is expensive either way,” Arif highlights. “You’re either burning through the sales budget trying to keep up with commission payouts, or churning through talent faster than you can ramp it.”
Market benchmarks are an essential input here to understand what competitive total compensation packages look like for different roles and levels, but Arif is clear it shouldn't be the only input.
“I’ve worked with companies that were 10-15% below market on cash, but had a really strong story about employee equity and so still attracted great people.”
“Being intentional about your overall employer value proposition, and which levers you want to compete on, is always a better approach than blindly matching the 50th percentile on everything.”
These decisions should be led by your compensation philosophy – the guiding document that defines your company’s core beliefs on how employees should be compensated, and the rationale behind decisions like how much you compete on cash vs equity.
Once you've established total target compensation, the next decision is how to split the cash element between base salary and variable – 50/50, 60/40, 70/30?
For Arif, the answer starts with the role, and its risk vs reward profile.
“The mistake I see most often is applying a one-size-fits-all pay mix across the entire sales organisation,” Arif says. “Giving an aggressive 50/50 split to an account manager handling renewals doesn't drive performance – it can actually damage customer relationships.”
“Hunter” roles which are focused on opening new accounts need skin in the game – a higher ratio of variable compensation, giving the motivation to chase those results.
On the other hand, “farmer” roles focused on nurturing existing relationships need the stability to build trust and long-term outcomes – a higher level of base salary, not anxiety about whether they’ll make rent.
“Applying the same ratio across both creates unnecessary stress in roles where it doesn't drive performance, and undersells the upside to reps where it should.”
The rule of thumb: match the ratio to the role, not to a company-wide policy.
Ravio's total cash benchmarks for UK technology companies highlight how the ratio between base salary and variable pay typically varies across different specialisms in sales:
The data reflects exactly what Arif describes.
Customer success roles carry the least variable pay – they're focused on relationship management and retention, where stability matters more than upside.
Direct sales have a higher amount of variable – they own the deal close and need the motivation needed to keep driving new business.
Direct sales roles focused on Enterprise deals have even higher variable – they’re larger, more complex deals, and the variable component needs to reflect that effort to keep sales reps motivated through a sales cycle that might span months.
Measures are the KPIs variable pay is tied to: revenue targets, new logo acquisition, product mix, deal size.
Weights determine how much of the total variable is allocated to each.
Together, they're the most direct lever for shaping what your sales team actually prioritises day-to-day, which means if you get the combination wrong you create misalignment between what the business needs and what reps are incentivised to do.
"If your corporate strategy says 'grow new logos' but the sales team are targeted on total revenue, you've got a problem," says Arif. "Reps will rationally optimise for what pays – and if upselling existing free trial users is easier than finding net new accounts, that's what they'll do."
On how many measures to include, Arif is clear. "My strong recommendation is no more than three measures. Beyond that, the weightings get too diluted to drive focused behaviour."
The reason comes down to how reps think under pressure.
"Let's say you have three measures, with a ratio of 45/40/15," he explains. "When you get towards the end of a quarter, the 15% gets dropped straight away. Nobody's going to focus on that when there's a bigger reward elsewhere."
Again, it comes back to how your reps think. The minimum threshold for a measure to meaningfully influence behaviour is 20% of total variable pay. Below that, it will always lose out to whatever is weighted higher.
Pick the two or three things that matter most, weight them so each one is worth chasing, and make sure they reflect what the business actually needs.
"Quota-setting is probably the single most sensitive decision in the entire plan," says Arif. "Get it right and you have a motivated team with clear targets and predictable costs. Get it wrong and you've either destroyed morale or blown the budget."
The tricky part is that "right" is subjective.
"Reps will always argue quotas are too high; finance will always want them higher," he says.
"The best approach I've seen is a bottoms-up methodology, building sales quotas from territory-level data like pipeline, historical performance, and market growth, rather than just top-down allocation of the company number.”
In practice, that might look like this: a territory had £800k in pipeline last quarter, historically converts at 25%, and the market is growing at around 10% year on year. That's £200k in expected revenue from existing pipeline, plus 10% for market growth giving a quota of roughly £220k for the quarter – arrived at from the ground up, rather than taking a £2m company target and dividing it across nine reps.
“It works well because reps are more likely to buy into a target when they can see the logic behind it, even if they don't love the number."
Of course, this approach works best when you have a foundation of quota attainment data to draw from. When you're designing sales compensation from scratch, you're often working on assumptions. Arif's advice for this: “if you're guessing, guess cautiously. It's better to start conservative and adjust upward than to set aggressive targets that demoralise the team or blow the budget.”
"Quota-setting is the single most sensitive decision in the entire plan. Get it right and you have a motivated team and predictable costs. Get it wrong and you've either destroyed morale or blown the budget"
Director of Compensation at Palo Alto Networks
Once base and variable ratio are set, the next question is how aggressively you’ll reward overperformance. How much can a sales rep earn above their total target compensation – 2x? 3x? Uncapped?
“This is the lever that separates good sales compensation plans from great ones,” says Arif.
“High leverage is what keeps your best reps pushing after they’ve already hit their target. Without meaningful upside for exceeding targets, a sales team member who hits their quota in October has no incentive to keep grinding throughout Q4.”
They’ll coast, sandbag deals into the next period, or start looking elsewhere for roles where they could earn more – even roles that offer a lower total cash package might have higher earning potential overall if they have generous accelerators for top performers.
This is where the design of your sales performance curve matters.
The performance curve describes how a rep's earnings accelerate as they move from 0% to 100% on-target and beyond – and how steeply you want to differentiate between those achieving and exceeding their targets, and those who don’t
A steep, or "Darwinian", curve means outsized rewards for those consistently above quota, compared to those consistently below it. A flatter curve softens that differentiation – which can feel fairer, but risks removing the incentive for your best people to keep pushing.
Arif's view is that the plans which work best tend toward the Darwinian end.
"Salespeople typically focus on the upside,” he says. “They will negotiate hard over the ceiling – pushing for better accelerators, higher caps, fewer restrictions on overachievement – but rarely challenge the floor.”
A steep curve speaks directly to that psychology: make the ceiling worth chasing, and your top performers will keep pushing toward it.
But, the catch is that high leverage only works if your quota-setting is sound (see point 8).
"Uncapped upside combined with bad quota-setting is how you get windfall payouts that blow up the comp budget," Arif warns. "Before you turn this dial up, make sure your quotas are defensible."
"Salespeople typically focus on the upside. They will negotiate hard over the ceiling – but rarely challenge the floor. Design for that."
Director of Compensation at Palo Alto Networks
Most sales compensation plans are built around three core tools: thresholds, accelerators, and caps.
A threshold is the minimum performance level before any variable pay kicks in – typically set somewhere between 50-70% of quota. It protects the business from paying out on poor performance, and signals that variable pay is earned, not guaranteed.
Accelerators are higher commission rates that kick in once a rep exceeds their quota – the main mechanism for rewarding overperformance, that ’leverage’ that we saw in section 4.
"The pay curve dictates the pace of earnings," says Arif. "Accelerators are the mechanism for actually rewarding top performance."
Decelerators work in the opposite direction to accelerators – reducing the commission rate for reps performing significantly below quota. Used carefully, they reinforce the Darwinian principle from section 4: real consequences for consistent underperformance, not just being happy receiving the ‘floor’ of base salary.
The right cadence for measuring performance against targets and paying out variable compensation depends on one thing: your sales cycle.
"Monthly quotas work well for transactional sales with short cycles," says Arif. "But monthly quotas for enterprise reps with nine-month deal cycles is a recipe for disaster – you get extreme payout volatility, which means reps suffer from not being able to control their month-to-month income."
Beyond matching the cycle, payout frequency serves a behavioural purpose.
"The closer the connection between closing a deal and seeing the commission, the stronger the reinforcement," says Arif. "A rep who closes on Tuesday and sees the payment on Friday's payslip feels that connection directly. A rep waiting six months for an annual payout doesn't.”
"The closer the connection between closing a deal and seeing the commission, the stronger the reinforcement."
Director of Compensation at Palo Alto Networks
"This is the least glamorous lever, but it causes some of the loudest disputes," says Arif.
When an SDR sources a lead and an AE closes it, who gets credited? And if both deserve a cut, how does the credit get split?
Without clear answers documented in advance, these questions create friction.
"Ambiguous crediting rules are behind most of the internal friction I've seen between sales teams, between reps and managers, and between sales and finance," Arif says. "Get the rules on paper, make them accessible, and enforce them consistently."
Double crediting can be a particular landmine for your relationship with finance. "Paying multiple reps full commission on a single deal might feel like good collaboration incentive design, but it can wreck the financial model of the plan," Arif warns. "If you're going to split credit, actually split it – don't duplicate it."
Arif’s approach is to build rules of engagement into the plan documentation from day one – anchored around the following questions:
The rules of engagement document becomes the source of truth. It won't eliminate every argument, but it removes the ambiguity that causes most of them.
Sales Performance Incentive Funds (SPIFs) are short-term tactical tools that often sit alongside a core sales compensation plan.
"Need to push a new product launch? SPIF it. Want to close out a soft quarter? A well-timed bonus can create urgency," says Arif.
"In my experience, President's Club is still one of the most powerful recognition tools in sales – the prestige of being included matters as much as the trip."
The primary risk here is overuse, so you want to be intentional in how you decide to use short-term incentives.
"If you run SPIFs too frequently, you train your sales team to hold back deals until the next bonus drops," Arif warns.
"Keep them funded separately from the core plan, deploy them sparingly, and make sure they don't contradict your primary plan measures."
"The best sales compensation plans share one trait: they're simple enough for every rep to understand exactly what they need to do to get paid, and precise enough to align those behaviours with what the company actually needs."
Director of Compensation at Palo Alto Networks
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