Seven Steps to Align Sales Compensation With Your Growth Strategy

If your Sales Compensation Plan is not aligned to your Growth targets, it will quietly reward the wrong behaviors and slow down revenue growth. Your Sales Compensation Plan should incentivize your commercial team to put in uncapped effort in pursuit of your growth targets.

In this blog we'll provide you with a seven step process to determine the best Sales Compensation Plan for your organization. We'll explain each of these steps in detail in separate chapters: 

1. First, your organizational setup needs to be clear. Who is responsible for what, how have you segmented your clients, and how are teams mapped to those segments? Which sales rep is responsible for which customer? 
2. Determine the budget you want to spend on the variable compensation of your sales teams and which pay mix (fixed/variable) is best suited for your teams.
3. Define the Core compensation Attributes (drivers) of your plan. These should be tightly linked to what needs to be optimized first.
4. Introduce the Adjustments and Guardrails that fine-tune your compensation plan.
5. Define the Terms and Conditions so that everyone understands exactly when they are paid and when they are not.
6. Verify, Model and Set Quotas. Use historical data and future scenario planning to make sure your plan works and drives the right results. Align individual quotas with company targets and territory assignments (organizational structure). 
7. Finally, as a seventh step, you need to Communicate, Deploy and Operationalize your plan. This includes communicating territory assignments, distributing individual goals and quotas, outlining the compensation plan itself, tracking performance, and establishing payout schedules.

Within your broader Commercial Strategic Planning, it is essential to design an organizational structure that is fully aligned with your growth ambitions. It is also a critical prerequisite for creating effective Sales Compensation Plans. 

Step 1: Define your organizational structure and territories

Before you can start building your compensation plan, you need absolute clarity on your commercial organization. You cannot design effective plans without it. This answers the key questions: who will be responsible for what? Will you separate Hunting and Farming roles, or combine them in a single team? How will you structure these teams, by industry vertical, by customer size (horizontal segmentation), or a mix of both? How many sales reps will be responsible for each vertical (x, y, z), and how are territories assigned? Territories determine your team targets and individual targets.

Your organizational design must be fully aligned with your growth strategy and objectives. A full separate blog could be written on this topic alone. Still, it is critical to get this right up front: if you start designing compensation plans without a clear organizational structure and segmentation strategy, you will not get the results you are aiming for.

Step 2: Determine budget, and pay mix (fixed/variable) 

In step 2 you should define a clear and realistic budget for the variable pay component so you can model scenarios without putting overall compensation costs at risk. Next to determining the budget for the overall variable pay component for your organization, you should have a clear strategy on what the pay mix (fixed/variable ratio) should be for your teams.

On Target Earnings (OTE) represent the total compensation a sales rep earns when they achieve 100% of their quota, combining both fixed (base salary) and variable (commission or bonus) components. 

When you scale your company, it’s critical to get the fixed/variable ratio within OTE right from the start. Changing pay mixes “in-flight” (within an existing sales organization) is possible, but it is at best very complex and disruptive. You cannot change the fixed pay for employees that already have a contract. In most cases (unless your sales members are ready to sign a completely new contract with you), you will only be able to increase variable compensation for existing sales members and by doing so, change fixed/variable rating. 

Pay mixes can widely differ per market and region. In the US, pay mixes of 50/50 fixed/variable are common practice, while in Europe 80/20 or sometimes even less is common. Higher risk means a higher potential reward and US based employees understand this leverage perfectly well. In the Netherlands, employees often request more security. Well drafted plans can however create trust from employees and drive them in a higher risk/reward scenario, even in regions less used to this model.

Sales compensation should be viewed as a core component of the total salary, not a discretionary "bonus". While a 80/20 model prioritizes security, the 50/50 model defines the variable portion as "at-risk" pay. In this framework, the commission is a fundamental obligation the sales rep must unlock to earn their full (OTE) salary. The true "bonus" should only exist in the form of overachievement. By setting 100% of OTE as the standard expected income, you establish that hitting quota is simply "doing the job". 

Higher leverage models only work when:

1. Sales reps have a high level of control over outcomes (good territories, realistic capacity, healthy pipeline, stable pricing/product delivery). If control is low, go for a higher base for better productive behavior.
2. Sales compensation plans are designed to be simple to understand, transparent in how they pay out, and structured to maximize accountability.

Different parts of your sales organization may require different levels of control, so it’s important to evaluate pay mixes per team. For example, how much control does your partner manager organization have over deals compared to your direct sales team?

Step 3: Which core attributes should you compensate on; Value, Profitability, Retention, Volume, Activities?

In step 3, we move into the real work: designing the actual sales compensation plan. The central question here is: “What do we want to optimize first in this specific part of the sales organization?” Are you primarily steering toward Financial drivers such as Revenue, Bookings, or Profitability, or toward Strategic drivers such as Retention, Volume/Market Penetration, or Activity?

Many organizations will say, “it’s a combination” or even “all of the above.” However, trying to pack all of these into a single plan is a bad idea. The best plans concentrate on a maximum of two core drivers and then use additional "Adjustments” to nudge specific behaviors. If you select more than two core attributes, your plan will be confusing for your sales teams and will fail to drive the intended behavior. Less is more.

Your compensation plans have a direct link with your (commercial) organizational setup. Different compensation attributes may be chosen per sales team. For example, have you divided your sales organization in hunters and farmers, then your compensation model for each team should be different.

Core attributes should be tightly linked to organizational goals, in a V2MOM Go To Market model, they are linked to your "Methods", while specific measurements such as Annual Recurring Revenue (ARR) or Annual Contract Value (ACV) are linked to your "Measures".

An overview of the core Sales Compensation attributes including an explanation on what these attributes will drive. 

Some examples of how these core attributes can be combined to drive specific behavior: 

1) Rewarding both Revenue (Value) and Pipeline Velocity (Activity)
If a sales rep is solely compensated on closed revenue, they will naturally ignore the "top-of-funnel" work. By combining Value-New with Activity, you stabilize the sales rep's focus. For example, compensate on Value-New (ARR) to drive the total dollar value of new business.
And, compensate on Activity (Qualified Demos) to ensure a consistent volume of sales conversations.

2) Weighing value for new and expansion deals differently
If a rep is responsible for both New and Expanded Value (see rethinking the Hunter vs Farmer divide in Sales), don't just combine them to compensate for created Value. Sales reps will always take the path of least resistance. If closing expansion deals is easier than closing new business deals, they will stop hunting. This can be fixed by assigning a higher commission rate (for example 10%) to new deals and a slightly lower rate (i.e. 7%) to expansion deals to reflect the difference in effort.

When you have established your core compensation attributes, its time to put Adjustments and Guardrails in place to fine-tune your plan. 

Step 4: Apply Adjustments and Guardrails to your Sales Compensation Plan

After the core compensation attribute has been chosen in the first phase of determining a sales compensation plan, the second phase will introduce the tweaking of the output to the desired state.

Take the raw signal coming from an electric guitar and it will give a clean tone. The "pedals", or the effect processors (i.e. gates, flangers, chorus, distortion) and the amplifier will alter the raw signal from the guitar such that it becomes the sound that is really desired. This is similar in a sales compensation plan. The basic attributes are tweaked in a shape that drives the right output from the sales organization. But, as in music, adding more than just a few will render the output useless and "too complex".

The best plans add as little Adjustments and Guardrails as possible. The most common used Adjustments and Guardrails can be found in the following overview: 

The more Adjustments and Guardrails are put in place, the more complex your sales compensation plan gets. If sales reps cannot easily calculate their own commission earned, your probably moving into the Twilight Zone of Sales Compensation. This is not only demotivating for your teams, adding too much layers will also cost significant effort in tracking and calculating sales compensation for each individual. 

Some examples of how these Adjustments and Guardrails can be added to the core sales compensation attributes (ACV, TCV, NRR, Volume etc) without adding too much complexity. 

1) Applying a Gate as a guardrail when "Volume" is used as a core attribute.
When using Volume (Logos), sales reps often sign tiny, non-profitable, clients just to hit their count. A simple guardrail is adding a "Minimum ACV" requirement. Example: a new logo only counts toward the Volume bonus if it is worth at least $5,000.

2) Applying a "Holdback" as a guardrail for "Value - New"
When you pay on Value - New (ARR/ACV), there is a risk that the deal "churns" before the first payment is even made. Instead of a messy clawback later, use a holdback. For example, you could pay 80% of the commission upon signing the contract, and hold 20% until the first invoice is paid in full. This pushes the sales rep to do a proper handover to Customer Success and make sure to drive Customer Experience.

3) Applying a "Kicker" as an adjustment for "Strategic Focus"
If you want to push a specific (i.e. new) product without changing the entire quota structure, use a kicker. For example, for every deal closed (Value- New), the rep gets their standard %. If that deal includes "Product X," they get an additional flat €500,- bonus. This is easy to track and doesn't require any complex calculations. 

4) Applying Margin as a Gate 
Instead of paying directly on Margin, you can use it as a Multiplier. If a rep gets a standard commission on the Value sold, but the Margin is higher then 80%, they get a 1.2x multiplier. If the Margin is less then 60%, they get a 0.8x penalty. Of course margins can be played with and even additional tiers in multiplier and penalties can be created. In this example a core compensation attribute is used as an adjustment layer. 

Applying the right Adjustments and Guardrails can soften the downsides of your chosen core compensation attributes. For instance, if you select New ARR as a core attribute, you can add an accelerator for multi-year contracts to improve revenue quality, without needing to use NRR or GRR as a primary metric in your plan. With such an accelerator in place, sales reps will naturally prioritize closing multi-year deals with higher CLTV, which in turn will improve the company’s NRR.

In terms of priorities between different Guardrails, at Venturise we favor holdbacks over clawbacks, as clawbacks can be highly demotivating for sales reps and typically require complex financial tracking.

Note that not all Guardrails need to live inside the sales compensation plan itself. To prevent excessive discounting, your Configure Price Quote (CPQ) setup should also contain its own guardrails that define which discount levels can be approved by whom. By giving sales reps a clearly defined discount band in which they can operate autonomously, and requiring Sales Management or the CRO to approve anything above that range, you can keep discounting under control without overloading your Terms and Conditions (T&C's; see next chapter) with detailed rules. The T&Cs can then simply state that reps must adhere to the company’s discount policy and obtain all required approvals before sending offers out.

Step 5: The Terms and Conditions (T&C's) of your Sales Compensation Plan

Clearly documenting the Terms and Conditions (T&Cs) that apply is an essential step. As an example: The EU Pay Transparency Directive will be turned into law per 7th of June 2026 (deadline). By law, all EU members must have strict transparency rules in place from that point onwards. You must be able to prove employees with objective criteria to determine their pay and commission. If your T&Cs are vague (or at "manager discretion"), you could be in violation. 

Of course, your sales compensation plans should clearly communicate what reps will be paid on (which core attributes) and which Adjustments and Guardrails apply. However, there are additional elements that must be explicitly documented. What happens when a sales rep is off sick, for example? In the Netherlands, if a sales rep is on long-term sick leave, for wages not determined by time (such as sales compensation), they are entitled (by law) to “the average amount they could have earned if not sick.” Typically, this average is calculated over the previous 36 months.

These clauses become especially critical with higher risk/reward packages and when variable compensation is considered part of the salary rather than a discretionary bonus. That said, this doesn’t have to result in dense legal jargon or a 10-page contract. We can provide you with examples and documentation to set clear T&C's, just send us note via our contact form. Your T&Cs should be tightly aligned with layer 1 (core compensation attributes) and layer 2 (Adjustments & Guardrails). Below you will find some of the essential components your plan should include:

Step 6: Verify, Model and Set Quotas 

By the time you reach this step, your sales compensation plan looks complete on paper. You have defined the Core Compensation Attributes, added thoughtful Adjustments and Guardrails, and captured clear Terms and Conditions. Step 6, Verify, Model and set Quotas, is about proving that this design actually works in the real world before you put it in front of your sales teams and that quotas are aligned to company goals and territory assignments of individual team members. You need to stress test your plan by applying different scenarios to its calculations so you can model the impact these have on achieving your main goals, your people and profitability. 

A structured approach allows you to backup intended consequences with data and uncover unintended consequences early.

With your company’s overall financial goals in mind, and with the organizational structure and territories clearly defined, you can now determine team quotas and model the individual targets required to hit them. It is good practice to build in a modest buffer between the combined targets of your sales organization and the CRO’s overall goal. Oversubscription should be kept lean, but sufficient to absorb unforeseen circumstances without putting your growth commitments at risk.

In practice, steps 3, 4 and 5, combined with step 6 (Verify and Model and Set Quotas), creates an iterative loop that fine tunes your plan before it ever goes live.

You should approach this step through two lenses. First, replay historical data (at least one year) through the new plan to see how it behaves. The second lens is forward looking. The key here is to model realistic future scenarios to understand how sensitive your plan is to shifts in performance, product mix, or market conditions. Look at cases where the plan would pay out a lot for low quality or windfall deals that required little effort or delivered limited long term value. Classic examples include one off mega deals with heavy discounting or customers who churned shortly after signing.

Setting Quotas should be done with behavioral economics and expectancy theory in mind (i.e. Vroom's expectancy theory). Modeling the Quota setting makes sure that sales reps feel their targets are fair and in reach. 

Make sure to verify your plan with Finance and HR. Together with the CRO, Finance will need to assess whether total compensation stays within budget under realistic upside and downside swings. HR validates compliance, fairness, and labor law constraints. They review whether the modeled outcomes are consistent with equal pay principles, role definitions, and local regulations. 

Once these elements are in place, you are ready to move to Step 7 and focus on how you communicate, deploy, and operationalize a plan that you have already proven to be working in a model.

Step 7: Communicate, Deploy and Operationalize your Sales Compensation Plan

When Core Compensation Attributes, the Adjustments and Guardrails and Terms and Conditions have been defined in a framework, and when you have stress tested your plan by modeling its outcomes, the final step of your Sales Compensation plan is its Communication, Deployment and Operationalization

Communication of your sales compensation plan

Explaining "Why" you are introducing a specific plan to your teams is an essential step. If your plan is tightly aligned with your business goals and GTM strategy, this should be relatively straightforward. When presenting your strategy (for example via the V2MOM framework), clearly communicate the key measurements for success. These are tightly related to the Core Compensation Attributes used in your sales compensation plans.

When you explain why you are introducing certain Adjustments and Guardrails, focus on the specific behaviors and outcomes you want to drive from your teams. Likewise, clearly communicating why you are introducing specific T&Cs is critical; otherwise, they risk being perceived as vague legal jargon rather than levers that protect both the company and the sales reps.

Quotas should go hand in hand with territory assignments. If you have taken a data driven approach and have modeled the outcomes of your plan, during step 6 (verify, model and set quotas), you will also be able to clearly communicate quotas for each team based upon data. 

Deployment of your sales compensation plan

After clearly communicating your plan and the "why" to your sales teams, secure their individual signoff. Setup a clear document (pdf) with your Core Compensation Attributes, Adjustments and Guardrails and all T&C's and let them confirm in writing (either by docusign or an email reply) that they have read, understood and agreed to the plan and their individual quotas/goals.   

Even if you use a general sales compensation plan that applies to the full team and you document the terms and conditions in a single team agreement rather than individual contracts, you still need explicit personal signoff from each sales rep. This confirms that every member has read the plan and clearly understands the objectives and conditions of their compensation.

Operationalize your sales compensation plan

You don't want your sales productivity to drop by having sales reps spend hours manually tracking their commissions because they lack faith in official reports. When a deal moves to "closed won", the impact to your sales reps commission must be visible immediately. Ideally this visualization is situated directly in CRM. If data remains vague or delayed, the motivational power of the incentive evaporates. If your sales compensation plan has many variables and involves many individuals, dedicated software to track performance and payout might be necessary. Less complexity, means less needs for complex tracking. i.e. clawbacks can become notoriously administrative, while holdbacks are simpler to manage and track. This Boston Consulting Group article will give you more insight in Sales Performance Management. 

Operationalization requires a commitment to a continuous feedback loop. No plan arrives perfect. By establishing a formal review cadence per quarter, the organization assesses whether the plan drives the key objectives of the company as originally intended. 

Sales compensation plans turn commercial strategy into action

Your sales compensation plan is the engine that turns strategy into execution and drives behaviors aligned with your key growth objectives. When you design it well, you create focus and an uncapped willingness to help your company grow. When you get it wrong, you quietly fund the wrong motions and slow growth without understanding the root cause.

Because every organization is unique, every sales compensation plan must be tailored. In larger companies, plans often differ per department or role. It’s smart to learn from people with practical experience who know exactly which levers to pull to get the right outcomes from your plan. 

Don't let your organization end up in the Twilight Zone of Sales Compensation. The goal should be to drive results without complexity. 

If you need support in setting this up, contact us. We can help you design and document clear, effective sales compensation plans quickly, without unnecessary complexity.