Sales Compensation Plan Design: A RevOps Guide From First Principles

Every sales compensation plan is a bet. You are wagering that if you pay people a certain way, they will behave in a way that drives revenue. Get the design wrong, and you either overpay for mediocre results or underpay and watch your best reps walk. This guide breaks down how to design a comp plan from first principles so that every dollar you spend on variable pay earns its keep.

Start With Your Revenue Strategy¶

Before you open a spreadsheet, answer three questions. What is your company’s primary growth motion - new logos, expansion, or retention? Which roles directly influence that motion? And what specific behaviors do you need those roles to perform?

Your comp plan must be a direct translation of these answers. If your board wants net-new ARR, your AE plan should weight new business bookings heavily. If net revenue retention is the priority, your AM plan should reward expansion and contraction prevention.

Establish On-Target Earnings (OTE)¶

OTE is the total cash compensation a rep earns at 100% quota attainment. It consists of two components:

The base-to-variable split depends on the role’s influence over the sale:

• High influence (closing AEs): 50/50 or 60/40
• Medium influence (SDRs, AMs): 60/40 or 70/30
• Low influence (SEs, CSMs): 70/30 or 80/20

Rule of thumb: The more direct control a rep has over the buying decision, the more variable their pay should be.

Choose Your Performance Measures¶

Every measure in your plan should pass three tests:

1. Controllability - Can the rep directly influence the outcome?
2. Measurability - Can you track it accurately in your CRM and billing systems?
3. Alignment - Does it drive the behavior your revenue strategy requires?

Common primary measures include closed-won ARR, net-new bookings, expansion revenue, and qualified pipeline generated. Secondary measures might include multi-year deal weighting, product mix targets, or strategic account penetration.

Assign weights to each measure. For example, an AE plan might allocate 70% of variable pay to new bookings and 30% to expansion revenue.

Set Quotas That Are Achievable but Ambitious¶

A well-calibrated quota should result in 60-70% of reps hitting target. If fewer than 50% are attaining, your quotas are too aggressive and morale will collapse. If more than 80% are hitting, you are leaving money on the table.

Use a quota-to-OTE ratio of 4x to 6x for AEs. That means an AE with $200K OTE should carry a quota between $800K and $1.2M in annual bookings.

Build the Plan Document¶

Your plan document should include these sections at minimum:

• Plan eligibility and effective dates
• OTE, base salary, and variable pay target
• Performance measures, weights, and calculation methodology
• Quota assignment and adjustment policies
• Accelerator and decelerator schedules
• Payment timing and terms
• Exception handling and dispute resolution process
• Plan administration and governance

Keep the language plain. If a rep cannot calculate their own expected payout within five minutes of reading the document, the plan is too complicated.

Model the Financial Impact¶

Before you launch, run three scenarios:

• Bear case: 40% average attainment. What does this cost the company, and can you afford the base salaries?
• Target case: 100% average attainment. Does total comp expense stay within 15-20% of revenue for your stage?
• Bull case: 130% average attainment with accelerators. Are you comfortable with the top-end payouts?

If the bull case makes your CFO uncomfortable, adjust your accelerator rates - not your quotas.

Key Takeaways¶

• Always start with your revenue strategy before designing mechanics
• Limit performance measures to two or three and weight them by strategic priority
• Use a 4x-6x quota-to-OTE ratio for AEs and calibrate so 60-70% of reps hit target
• Model bear, target, and bull scenarios before launch to avoid surprises
• Write plan documents in plain language so reps can self-calculate their earnings

Sources: SalesComp Lab