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Introduction to Sales Compensation Plan: Are You Rewarding The Right Results?
A sales compensation plan does more than decide how much your salespeople earn. It tells them what the business really values.
If you reward revenue at any cost, people may chase easy deals and discount heavily. If you reward activity, they may fill the CRM with calls and meetings that never convert. If you only reward individual performance, collaboration can quickly disappear.
The behaviour you reward is usually the behaviour you get.
That is why a sales compensation plan should support the sales strategy rather than work against it. It needs to encourage profitable growth, stronger customer relationships and the selling behaviours that lead to consistent performance.
The problem is that many businesses inherit commission structures that were designed years ago. Targets change. Markets change. Margins change. But the incentives remain the same.
When that happens, salespeople can be doing exactly what the compensation structure encourages while management wonders why the sales team is underperforming.
The answer is not automatically to increase commission. It is to make sure you are rewarding the right results.
What Is A Sales Compensation Plan?
A sales compensation plan defines how salespeople are financially rewarded for their contribution to the business.
It normally combines a fixed salary with some form of variable pay, such as commission, bonuses or performance incentives. The balance between those elements depends on the role, sales cycle, margin, level of influence and commercial objectives.
A good sales compensation plan should be simple enough for a salesperson to understand without opening a spreadsheet every time they win an order.
They should know:
- What results are expected.
- Which results attract additional reward.
- How their commission or bonus is calculated.
- When they will be paid.
- What happens when targets are exceeded.
- Which behaviours will not be rewarded.
The structure also needs to reflect what the salesperson can genuinely influence. There is little value in heavily rewarding someone for an outcome largely controlled by pricing, marketing, delivery capacity or another department.
The clearer the link between performance and reward, the easier it becomes for people to make sensible commercial decisions and maintain sales team accountability for the results they influence.
Your Compensation Structure Is Already Training Your Sales Team
Every incentive changes behaviour.
You may tell the team that profitable growth matters, but if commission is calculated purely on turnover, they have a financial reason to prioritise revenue instead.
You may tell people to protect margin, but if a heavily discounted deal earns almost the same commission as a full-value deal, the compensation structure says something different.
This is why compensation and corporate sales training cannot be treated as completely separate subjects.
One develops the behaviour. The other reinforces it.
Research published in the Journal of Personal Selling & Sales Management highlights how the way salespeople communicate and operate changes as the selling environment changes.
If you train people to sell value but financially reward them for closing anything at any price, the compensation structure will normally win.
Salespeople are not necessarily being difficult. They are responding rationally to the system placed in front of them.
That means leadership needs to examine the entire commercial environment. Targets, coaching, management expectations, sales process and incentives should all point in broadly the same direction.
A sales compensation plan becomes particularly powerful when it reinforces behaviours the business genuinely wants to repeat.
Are You Rewarding Revenue Or Profitable Revenue?
Revenue is easy to measure. That does not mean it should always be the main basis of commission.
Imagine two salespeople each generate £1 million of revenue.
One protects margin, sells the right products and develops accounts with long-term potential. The other wins business by discounting aggressively and accepting low-quality opportunities.
If both receive the same reward, what message does the sales compensation plan send?
It says revenue matters more than how that revenue was created.
That can create serious problems when a sales team is discounting too much or losing control of value conversations.
Depending on the business, it may be more appropriate to reward:
- Gross profit.
- Contribution margin.
- Recurring revenue.
- New customer acquisition.
- Growth within strategic accounts.
- Retention of profitable customers.
- A balanced combination of measures.
This does not mean every compensation structure should become complicated.
In fact, excessive complexity can be just as damaging. If people cannot predict what a sale is worth to them, the incentive loses much of its motivational power.
The aim is to reward the commercial result you actually want rather than the easiest number to extract from the CRM.
Where value selling is important, sales training for teams should also help people understand why protecting margin matters to both the business and the customer.
Activity Is Useful, But Activity Is Not The Result
Sales activity matters.
Without calls, conversations, proposals and follow-up, there will normally be fewer opportunities to win business.
But activity should not be confused with achievement.
This becomes a problem when a sales compensation plan rewards people for metrics that can be increased without producing meaningful commercial progress.
If a salesperson is measured heavily on the number of calls they make, they can make more calls.
If they are measured on meetings booked, they can become less selective about which meetings are worth having.
If proposals are rewarded, they can send proposals before opportunities have been properly qualified.
The dashboard looks busy. The pipeline looks full. Revenue does not move, which is why sales conversion rate matters more than simply increasing activity.
Activity measures are often useful as coaching indicators rather than compensation measures.
They can help a manager understand why someone is struggling. But paying for activity can accidentally encourage quantity over quality.
If sales conversations are not converting, the answer is rarely just to create more conversations. The business needs to understand what is happening inside them.
That is where sales team training can help people improve questioning, listening, qualification, value communication and commercial confidence.
A stronger sales compensation plan then rewards the outcomes those skills are intended to create.
Commission Can Accidentally Encourage Discounting
Many businesses tell their salespeople to stop discounting while simultaneously operating a commission structure that makes discounting attractive.
Consider a salesperson who can secure a £50,000 order at full value or reduce it to £45,000 to get the customer to say yes quickly.
If the personal difference in commission is relatively small, discounting may feel like the rational choice.
The salesperson gets the deal. The customer gets a lower price. The business absorbs the lost margin.
Repeat that behaviour across an entire team and the financial impact becomes significant.
A sales compensation plan should therefore consider whether the commission calculation supports premium pricing and value selling.
Possible approaches include:
- Paying commission on margin rather than revenue.
- Reducing commission below an agreed margin threshold.
- Increasing reward for higher-value product mixes.
- Requiring management approval for exceptional discounts.
- Separating genuinely strategic pricing decisions from routine discounting.
But compensation alone will not solve the problem.
If salespeople lack confidence explaining value, they may still discount because they cannot justify the difference between your offer and a cheaper competitor.
Good sales communication training gives people the skills to explain value more clearly. The compensation structure should make sure they are not financially punished for using those skills.
Individual Commission Can Create Team Problems
Individual commission has an obvious advantage. People can clearly see the relationship between their own performance and their reward.
But it can also create unintended consequences.
If every salesperson is rewarded purely on individual revenue, what incentive do they have to help a colleague?
Why share an opportunity?
Why give someone else useful information?
Why support an account when somebody else receives the commission?
A poorly designed sales compensation plan can create internal competition when the business actually needs collaboration, reducing sales team productivity across shared opportunities.
This is particularly relevant in complex B2B environments where several people may contribute to the same customer relationship.
An account manager may identify the opportunity. A technical specialist may establish credibility. Another salesperson may negotiate the commercial agreement. Customer service may then influence whether the account grows.
If the reward structure ignores those interactions, disagreements about ownership can become more important than the customer.
Some businesses address this through team incentives, shared commission, account-based measures or a combination of individual and collective targets.
There is no universal answer.
The right design depends on the sales process and how customers actually buy.
Strong B2B sales training can improve collaboration and consistency, but the reward structure must support those expectations rather than undermine them.
New Business And Account Growth Need Different Thinking
Winning a completely new customer can require more work and more risk than developing an established account.
Yet some businesses reward both activities in exactly the same way.
That can create distorted behaviour.
If existing accounts are easier to grow, salespeople may spend most of their time there while new business slows down.
If new customers attract very high commission, existing accounts may receive less attention than they deserve.
A sales compensation plan should reflect the strategic importance and difficulty of each type of revenue.
You might distinguish between:
- New customer revenue.
- Existing customer growth.
- Recurring revenue.
- Renewals.
- Cross-selling.
- New products or services.
Again, simplicity matters.
A compensation structure containing fifteen different calculations may technically cover every scenario but become impossible for the team to understand.
Start with the business strategy.
If winning new business is the priority, make sure the incentive reflects it.
If customer retention and account development matter more, reward those outcomes appropriately.
The sales compensation plan should tell the same commercial story as the leadership team.
What Happens When Targets Become Unrealistic?
A compensation structure only motivates people when the target feels difficult but achievable.
If targets become obviously unrealistic, behaviour changes.
Some people stop believing the incentive is worth pursuing.
Others begin looking for ways to manipulate timing, pipeline stages or deal ownership, weakening sales pipeline visibility for managers trying to understand what is genuinely likely to close.
Strong performers may leave because they believe they can earn more elsewhere.
And managers can find themselves spending every month defending a target that the team stopped believing in months earlier.
A sales compensation plan needs targets based on commercial reality.
That means considering:
- Territory potential.
- Market conditions.
- Account allocation.
- Length of the sales cycle.
- Historical performance.
- Lead quality and volume.
- Changes in pricing or product availability.
- The salesperson’s level of experience.
This does not mean lowering targets whenever somebody complains.
Sales targets should stretch performance.
But there is a difference between stretching people and asking them to achieve a number that has little relationship with the opportunity available.
Good sales management combines realistic targets with regular coaching and clear accountability, including effective sales manager coaching that focuses on the behaviours behind performance.
Where performance problems are behavioural rather than structural, corporate sales training can help managers and teams understand where conversations, skills and processes need to improve.
Should You Reward Sales Behaviours As Well As Results?
This is where compensation design can become complicated.
Sales leaders often want people to follow the sales process, use the CRM correctly, conduct proper discovery and protect customer relationships.
Those behaviours matter.
But paying commission directly for every desirable behaviour can create a system that is difficult to administer and easy to manipulate.
Results usually remain the clearest basis for variable compensation.
Behaviours can then be reinforced through management, coaching, recognition, promotion decisions and performance reviews.
There may still be circumstances where a behavioural component makes sense.
For example, a business going through a major strategic change might temporarily reward adoption of a new sales methodology or focus on a new market.
But ask one question before adding another element:
Will this improve the result we actually care about?
If the answer is unclear, do not make the sales compensation plan more complicated simply because another metric exists.
Salespeople need clarity.
A repeatable sales process, good coaching and appropriate sales process training can reinforce the right behaviours without turning every action into a commission calculation.
Keep The Sales Compensation Plan Simple Enough To Understand
A clever compensation structure is not necessarily a good compensation structure.
If salespeople cannot calculate roughly what they will earn from a deal, the motivational connection becomes weaker.
Complex plans can also create distrust.
People begin questioning calculations, arguing about exceptions and trying to understand why two apparently similar deals produced different commission payments.
The management team then spends time administering the scheme instead of improving sales performance.
A strong sales compensation plan should answer four questions quickly:
- What am I expected to achieve?
- What will I earn if I achieve it?
- What happens if I exceed it?
- What behaviour could reduce or remove the reward?
Accelerators can be useful because they increase reward after a salesperson exceeds target.
Thresholds can also make sense where variable pay should only begin after a minimum level of performance.
But every additional rule should have a clear commercial purpose.
If nobody can explain why a component exists, consider removing it.
Review Whether Your Sales Compensation Plan Still Matches The Strategy
A compensation structure should not be designed once and forgotten.
Businesses change.
You may move towards recurring revenue. Margins may tighten. A new product may become strategically important. Customer retention may become more valuable than acquisition. The sales team may shift from transactional selling towards consultative selling.
If the sales compensation plan remains unchanged, people may continue optimising for yesterday’s priorities.
Review it periodically, particularly when changes in targets or pipeline quality begin affecting sales forecasting accuracy, and ask:
- What behaviour is the current structure encouraging?
- Are salespeople protecting margin?
- Are we winning the right type of customer?
- Are people focusing on strategically important products?
- Does the plan encourage collaboration?
- Are targets achievable across different territories?
- Are our strongest performers being appropriately rewarded?
- Is the structure easy for managers and salespeople to understand?
Do not only look at what management intended the scheme to achieve.
Look at what people actually do because of it.
That is the real test.
Frequently Asked Questions About Sales Compensation Plans
What is a sales compensation plan?
A sales compensation plan explains how salespeople are rewarded for performance, usually through salary, commission and bonuses. A good plan connects individual earnings with commercial priorities such as profitable revenue, new business, account growth or retention. It should be clear, measurable and closely aligned with the organisation’s wider sales strategy.
What should a good sales compensation plan include?
A good sales compensation plan should define salary, variable pay, targets, commission rates, thresholds, accelerators and payment rules. It should also explain how discounts, cancellations and shared accounts are treated. Decision-makers should ensure the structure rewards outcomes salespeople can influence and does not accidentally encourage poor commercial behaviour.
Should sales commission be based on revenue or profit?
The right measure depends on the business model. Revenue commission is simple, but it can encourage discounting where margin varies significantly. Rewarding gross profit or contribution can better support value selling. Sales leaders should choose the measure that reflects genuine commercial success while keeping the calculation straightforward enough for the team to understand.
Can a sales compensation plan cause salespeople to discount?
Yes. If commission is mainly based on revenue, a salesperson may sacrifice margin to secure an order quickly. This becomes especially likely when the personal cost of discounting is small. Combining sensible compensation design with value selling, sales coaching and stronger sales communication can reduce unnecessary discounting across the sales team.
Why is my sales team underperforming despite paying commission?
Commission does not correct weak sales conversations, poor qualification, unclear value or an ineffective sales process. It simply rewards whatever outcome the compensation structure measures. If a sales team is underperforming, leaders should examine capability, coaching, management, pipeline quality and incentives rather than assuming higher commission will automatically improve performance.
Should salespeople be rewarded for activity?
Activity can be useful for managing and coaching sales performance, but paying directly for calls, meetings or proposals can reward quantity instead of quality. Sales leaders normally gain more by using activity data diagnostically while linking variable compensation to meaningful commercial outcomes such as profitable revenue, conversion, customer growth or retention.
How often should a sales compensation plan be reviewed?
Most businesses should review their sales compensation plan at least annually and whenever strategy, margins, products, territories or roles change materially. The purpose is not to redesign commission constantly. It is to check whether the existing structure still encourages the sales behaviour and commercial outcomes senior management currently wants.
How do you stop salespeople focusing only on commission?
Clear leadership, sensible targets and strong sales management matter as much as the commission structure. Salespeople need to understand the customer outcomes and commercial priorities behind their targets. Coaching, recognition, career progression and team culture should reinforce these expectations so financial reward becomes one part of performance rather than the entire reason for selling.
Should individual salespeople and teams have different incentives?
It depends on how customers are won and managed. Purely individual commission can work in independent sales roles, but complex B2B sales often require collaboration. A combination of individual and team measures can encourage accountability without creating internal competition that damages account management, knowledge sharing or the overall customer experience.
How can a sales compensation plan improve sales performance?
A well-designed sales compensation plan focuses attention on commercially valuable outcomes. It can encourage profitable selling, strategic account development, new business or customer retention. But incentives work best alongside effective sales management, coaching and skills development. Compensation can reinforce good performance, but it cannot replace capability, confidence or a repeatable sales process.
What happens when sales targets are unrealistic?
Unrealistic targets can reduce motivation because salespeople stop believing the reward is achievable. They may also encourage short-term behaviour, excessive discounting or disputes about territories and opportunities. Good sales management uses stretching but credible targets based on market potential, sales cycle length, account allocation, historical performance and the resources available to each salesperson.
Can sales training fix a poor sales compensation plan?
No. Sales training can improve questioning, value communication, consultative selling, confidence and conversion skills, but it cannot correct an incentive structure that rewards the wrong behaviour. The strongest results come when the sales compensation plan, management expectations, coaching, sales process and training all reinforce the same commercial priorities.
Reward The Results You Actually Want
A sales compensation plan is one of the clearest signals a business sends to its sales team.
People notice what gets measured. They notice what gets rewarded. And they quickly understand which results make the biggest difference to their income.
That is why compensation cannot be designed in isolation.
If you want better margins, the reward system should not encourage discounting.
If you want collaboration, it should not turn every opportunity into an internal argument about ownership.
If you want sustainable growth, it should not reward poor-quality revenue simply because it increases turnover.
And if you want better sales performance, do not assume commission can compensate for weak sales skills, inconsistent coaching or a sales process that is not working.
The best sales compensation plan is clear, commercially sensible and aligned with the way you want customers to be sold to.
Reward the right results and people have a reason to repeat the behaviours that created them.
Reward the wrong results and you may get exactly what you paid for.
We provide corporate sales training for businesses that want clearer, more effective sales conversations. That includes corporate sales workshops, sales coaching, and tailored sales training for teams built around the real conversations your people have every day. We also deliver consultative selling training that helps businesses simplify their message and communicate value with confidence. We support companies across the UK that want stronger sales conversations, better commercial results, and more of the right clients.
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