Tiered Commission Structures: The Economics Behind Accelerators and Decelerators¶
Every commission plan makes a bet.
A tiered commission plan makes a specific one:
If we pay sellers more once they hit quota, total company revenue will grow faster than total compensation expense.
Some leaders instinctively resist accelerators: - “Why would we pay 2x the rate after quota?” - “Isn’t that too expensive?” - “What if everyone blows it out?”
But tiered commission structures are not generosity.
They are applied behavioral economics.
Let’s break down why they work — mathematically, psychologically, and strategically — and when to use two tiers, multiple tiers, or even decelerators.
What Is a Tiered Commission Structure?¶
A tiered commission plan increases the commission rate once a rep surpasses certain performance thresholds.
Example:
| Attainment Level | Commission Rate |
|---|---|
| 0–100% | 10% |
| 100–120% | 15% |
| 120%+ | 20% |
The critical concept is marginal rate.
You are not paying 20% on all revenue.
You are paying 20% only on incremental revenue beyond 120%.
That distinction is the foundation of the economics.
Why Tiered Structures Work: Behavioral Economics¶
1. The Goal Gradient Effect¶
Effort increases as people approach a defined target.
A rep at 92% quota behaves differently than one at 72%.
Accelerators amplify that urgency.
Without them, 100% feels similar to 95%. With them, 100% becomes a launch point.
2. Marginal Incentives Drive Behavior¶
People respond to the value of the next dollar — not the average dollar.
Flat-rate plans flatten urgency. Tiered plans sharpen it.
3. Overperformance Has Higher Economic Value¶
Incremental revenue beyond quota: - Has already absorbed fixed cost - Improves operating leverage - Often carries high contribution margin
That makes it rational to pay more for it.
The Economics of Paying More After Quota¶
Example assumptions:
- Gross margin: 75%
- OTE: $200,000
- Quota: $1,000,000
- Commission at target: 10%
At quota: - Revenue: $1,000,000 - Gross profit: $750,000 - Commission: $100,000 - Contribution: $650,000
Now assume $200,000 incremental revenue at 20% accelerator:
- Incremental gross profit: $150,000
- Commission: $40,000
- Contribution: $110,000
Even at double commission rate, you retain the majority of incremental gross profit.
Accelerators are rarely the margin killer. Underperformance is.
When to Use 2 Tiers vs Multiple Tiers¶
This is a strategic design decision.
Not a cosmetic one.
Use a 2-Tier Structure When:¶
Example: - 0–100% = 10% - 100%+ = 18%
Choose two tiers when:
- Revenue motion is stable and predictable
- Quota attainment clusters tightly around 85–115%
- Simplicity is critical (large team, limited comp ops support)
- You want a strong “breakpoint” at quota
Two-tier plans maximize clarity.
Reps instantly understand: “Hit quota. Then earn more.”
They are ideal for: - Mature mid-market SaaS - Enterprise teams with long cycles - Organizations prioritizing transparency
Use Multiple Tiers When:¶
Example: - 0–100% = 10% - 100–120% = 15% - 120–140% = 20% - 140%+ = 25%
Choose multiple tiers when:
- Top performers materially move revenue
- Performance distribution is wide
- Growth stage requires aggressive overachievement
- You want to continuously reward incremental lift
Multi-tier plans create ongoing acceleration rather than a single jump.
They are ideal for:
- Hypergrowth environments
- Startups scaling aggressively
- Teams with high performance dispersion
But beware:
More than 3–4 tiers often adds complexity without meaningful behavioral gain.
When to Use Decelerated Tiers¶
Decelerators are misunderstood.
They are not punishment.
They are economic guardrails.
1. Decelerators Below Quota¶
Example: - 0–50% = 0–3% - 50–100% = 8–10%
Why use them?
To reinforce minimum acceptable performance.
Without deceleration, a rep at 40% quota might still earn significant commission.
That weakens performance culture.
Decelerators below 60–70% attainment:
- Protect compensation budget
- Reinforce standards
- Align payout with acceptable contribution
But use carefully: Overly aggressive deceleration can demotivate mid-tier reps.
2. Decelerators at Extreme Over-Attainment¶
Example: - 100–130% = 18% - 130–160% = 22% - 160%+ = 15%
Why reduce rates at extreme levels?
Three reasons:
-
Risk concentration
A single large deal could create outsized payout. -
Windfall distortion
Not all extreme overperformance reflects repeatable behavior. -
Budget smoothing
Protects comp-to-revenue ratios.
This structure is common in: - Enterprise sales - Lumpy deal environments - Hardware or thin-margin businesses
But use cautiously.
If top performers feel capped, they may: - Delay deals - Sandbag pipeline - Leave for competitors
Designing the Right Tier Structure¶
Ask five questions:
- How wide is our attainment distribution?
- How much do top performers drive total revenue?
- What is our gross margin?
- How volatile are deal sizes?
- Can reps easily calculate their own earnings?
If a rep cannot estimate payout in five minutes, the design is too complex.
Clarity drives motivation.
Modeling Before Launch¶
Before implementing:
Run three scenarios:
- Bear case (40% average attainment)
- Target case (100%)
- Bull case (130%+ with accelerators)
Evaluate:
- Total commission cost
- Effective commission rate
- Contribution after commission
- Incremental ROI (Incremental Gross Profit ÷ Incremental Commission)
If ROI is greater than 3:1, your structure is usually economically sound.
For a full modeling framework, see our Sales Compensation Plan Design Guide.
Final Takeaways¶
Tiered commission structures work because:
- Humans respond to marginal incentives.
- Incremental revenue has higher economic value.
- Accelerators focus compensation spend on top performers.
Use:
- 2 tiers for simplicity and clarity.
- Multiple tiers for aggressive growth environments.
- Decelerators below quota to enforce standards.
- High-end decelerators only when volatility demands protection.
Accelerators are not reckless spending.
They are capital allocation toward your highest-yield revenue producers.
Design them intentionally.
Model them rigorously.
Keep them simple enough to calculate on a whiteboard.
That’s when tiered commissions become a growth engine — not a budget risk.