How Commission Structures Affect Sales Performance

Your top rep just hit 180% of quota. Finance is panicking. "We can't pay them $400K! That's more than the VP makes!" So you cap commissions at 150% of plan. So essentially, you just told your best performer to stop performing. Commission caps were things devised by CFOs who have no understanding of sales math. They protect budgets while destroying the behavior that actually drives revenue. Finance folks might look at these as cost savings measures, but here's where it bites you in the ass: 1. Top performers leave. A rep who can generate $2M in ARR won't stick around to make $250K when competitors will pay them $350K. Replacing a top 10% rep costs 6-12 months of their annual production. That's $500K-$1M in lost revenue to save $50K in commission. 2. Everyone else mediates to the cap. Why bust through 150% when you don't get paid for it? Your reps will (understandably) spread deals across quarters, manage timing, and optimize for lifestyle over performance. This is one of the big reasons why the term sandbagging was invented. 3. Your culture shifts from growth to limits. This one hurts the most, IMO. High performers don't just hit numbers. They set the pace, mentor others, and create competitive momentum. Cap their upside, and you've told the entire team that excellence has boundaries. 4. The pipeline math gets busted up. Capped reps stop prospecting in Q4. They play Angry Birds rather than working through December, knowing January resets their earning potential. Your Q1 starts with empty pipelines because Q4 ended with artificial constraints. IF (and I do mean if) you want to build in some creative limits, here are some more palatable ideas: 1. Cap total earnings, not commission rates. Example: $500K total earnings cap vs. commission rate reduction at 150%. This maintains incentive structure while controlling outlier risk. 2. Use progressive rates rather than cliff cuts. - 0-100%: 10% commission. - 100-150%: 12% commission. - 150%+: 8% commission (still earning, but slower acceleration). 3. Tie caps to value creation. Cap kicks in only if deals lack proper qualification or have high churn risk. The logic here is that quality gates maintain standards while still rewarding performance. 4. Make caps a company-size conversation. - Startups should have no caps (you need EVERY deal). - Growth companies should cap at 200%+ (protect budget, reward excellence). - Enterprise should focus on quota accuracy vs payment limits. The talent market is super tight right now, and I know for a fact that many, many companies are struggling to find solid AEs. Keep in mind that gangster reps want work for companies that understand simple math: If a rep generates $3M in value and takes home $400K, you just made $2.6M in gross profit. Cap that earning, and next quarter you'll make $0. So it's really your choice. Pay for performance or explain to the board why your top talent works for competitors.

𝐀 𝐬𝐚𝐥𝐞𝐬 𝐫𝐞𝐩 𝐛𝐮𝐢𝐥𝐭 𝐚 𝐦𝐮𝐥𝐭𝐢-𝐦𝐢𝐥𝐥𝐢𝐨𝐧-𝐝𝐨𝐥𝐥𝐚𝐫 𝐛𝐨𝐨𝐤 𝐨𝐯𝐞𝐫 𝟏𝟓 𝐲𝐞𝐚𝐫𝐬. 𝐓𝐡𝐞𝐧 𝐭𝐡𝐞 𝐂𝐅𝐎 𝐜𝐡𝐚𝐧𝐠𝐞𝐝 𝐭𝐡𝐞 𝐜𝐨𝐦𝐦𝐢𝐬𝐬𝐢𝐨𝐧 𝐩𝐥𝐚𝐧. 𝐒𝐢𝐱 𝐦𝐨𝐧𝐭𝐡𝐬 𝐥𝐚𝐭𝐞𝐫, $𝟖𝟎𝟎𝐊 𝐢𝐧 𝐫𝐞𝐯𝐞𝐧𝐮𝐞 𝐰𝐚𝐬 𝐠𝐨𝐧𝐞. This is not about emotion. It is about predictable outcomes. For 15 years, this rep showed up. He met clients face-to-face. He solved problems. He protected accounts during tough quarters. His compensation increased because his revenue increased. Then the CFO decided his commission was “too high.” From a financial perspective, the commission line looked high. Adjusting the structure seemed reasonable. Improve margin. Protect profitability. But sales does not operate on spreadsheets alone. In relationship-driven businesses, revenue is tied to people. When you reduce a top performer’s earning potential, three things usually happen: 1. They lose trust in leadership. 2. They start taking recruiter calls. 3. Competitors make better offers. And when they move, clients often move with them. That is what happened here. Before changing a commission plan for a top performer, leadership should ask: - How much revenue is tied to this person? - How relationship-driven are their accounts? - How long would it take to rebuild this book of business? If one individual drives significant revenue, changing their pay structure is not a small decision. It is a strategic one. There is nothing wrong with reviewing margins. But when you cap earnings, you may also cap loyalty. And in sales, loyalty is what keeps revenue in the building. The real question is not, “How do we reduce this commission?” It is, “Can we afford to lose what this person has built?”

One of my first moves as Chief of Staff: fix the sales commission structure. Most companies pay lower commissions on renewals. 
They think renewals are easy and automatic. That’s bullsh*t. Renewals face churn risk every cycle.
 Customer success can drop the ball.
 Product bugs appear.
 Competitors undercut.
 Budget cuts hit. Economic shifts kill deals.
 Sales owns the outcome but controls almost none of it. I push for the same commission rate on renewals as the initial close.
 Better: pay on total contract value (TCV) from day one.
 Initial sale + all renewals and expansions at the same rate. Why it works: Reps stay engaged through the life of the account They fight harder to prevent churn They upsell naturally because it pays the same Team morale stays high; no resentment over “easy money” tiers Results: First: switched to flat 20% on TCV. Renewal rate rose 18% in 12 months. Pushed clients into 3 & 5 Year deals. Second: same rate on initial and renewal. Net retention jumped from 92% to 134%. Reps closed 25% more expansions. Your competitors cut renewal commissions.
 They lose deals they could have saved. Pay full rate on TCV.
 Align incentives with reality.

Most founders build their sales comp plan in about 15 minutes. Then spend the next 12 months wondering why their best reps leave and their worst reps stay. The most common structure is a flat commission rate across the board. It feels fair (everyone gets the same percentage). But "fair" and "effective" are not the same thing. Your closer bringing in $80k a month gets treated the same as the one doing $20k. Top performer sees no financial upside to going from great to exceptional. Bottom performer has no real downside to staying mediocre. The incentive structure is neutral... which means it's working against you. What I've seen work consistently over 12+ years of building sales teams is tying comp to behaviors, not just outcomes. Outcomes matter. But if you only compensate on closed revenue, you're rewarding the finish line and ignoring everything that gets someone there. What about show rate? Speed-to-lead? Quality of the handoff to fulfillment? When you attach small bonuses to the behaviors that drive outcomes, your team starts thinking about the process. They tighten up on follow-ups because there's a tangible reward for doing it right. They care about the client experience after the close because it's connected to their comp. And when underperformance isn't protected by a generous base or a flat structure, the people not putting in the work self-select out. You don't have to fire them. The structure does the heavy lifting. Build a comp plan that makes your best people feel seen and your underperformers feel uncomfortable. That's the only structure that scales.

This sales rep hit 160% of quota last year. Her reward? 40% quota increase. Same OTE. Same territory. Same product. Same market. Make it make sense... Her OTE stayed the same. She worked harder, earned less per deal, and still finished at 118% of quota. Guess what her manager told her at the end of that year? “You’ve had a down year.” She generated more revenue than almost anyone on the team in a market that actually got harder in the second half. But the company reframed her performance so they didn’t have to pay what last year’s plan promised. I see this all the time in HCM and payroll sales. A rep blows out quota. Finance panics at the payout. So the next year’s plan resets the number just high enough to keep that rep under the top commission tier. At that point the comp plan isn’t designed to reward performance. It’s designed to manage payouts. The best reps figure this out quickly. Then they go somewhere that actually pays what it promises.

This is the most underrated problem I've seen when trying to build or expand partnership GTM: Leadership is initially fully behind a new partnership, excited about its potential, but that enthusiasm never makes its way down to the sales teams who are expected to execute. Without alignment, even the best partnership can stall before it has a chance to succeed. Why does this happen? Sales teams are often focused on their core products, and if a partnership doesn’t clearly benefit them or fit into their day-to-day operations, it becomes an afterthought. To turn things around, you need to make sure your partnership incentives, compensation, and training are in lockstep with the teams that will be selling your product. Here’s how to align incentives and drive results: 1. Ensure your incentives are compelling enough for frontline teams. It’s not enough to excite leadership—sales teams need a clear, tangible reason to sell your product. - Introduce a financial incentive or bonus structure that’s competitive with what reps earn on their core products. This could be a one-time bonus for the first sale, or an ongoing commission that rewards consistent effort. -Tie the incentive to their existing sales goals. If your product helps them hit their targets more easily, they’ll naturally prioritize it. 2. Structure partner compensation to motivate co-selling. If your partner compensation doesn’t align with their core goals, they won’t push your product. - Design a compensation plan that aligns with both the partner’s and your business objectives. For instance, if your partner’s core offering is hardware, incentivize bundling your software as part of the sale to create a win-win situation. - Offer performance-based incentives that reward partners for hitting key milestones—whether that’s a certain number of units sold, a specific revenue target, or even customer engagement metrics. Keep it simple and measurable. 3. Provide consistent training and engagement so your product isn’t just another checkbox. Sales teams won’t advocate for your product if they don’t fully understand its value or how to sell it. - Develop ongoing, bite-sized training sessions that fit into their schedules. Instead of overwhelming them with lengthy sessions, focus on 15-minute, high-impact trainings that teach them how to identify the right opportunities. -Pair training with real-time support. Join sales calls, offer one-pagers, and provide direct assistance during key customer engagements. When they feel supported, they’re more likely to feel confident pushing your product. This kind of alignment can make the difference between a stalled partnership and a thriving one. When sales teams are motivated, equipped, and incentivized to sell your product, the partnership stops being just another checkbox—it becomes a key driver of growth.

A decade ago I was struggling to get my sales team to shift into selling recurring revenue instead of so much project revenue. We tried a lot of things with zero success. The team felt comfortable with how they had been doing it, and it was like wrestling a gorilla to affect change. Finally my behavioral economic degree kicked in and I realized I was fighting a never-ending war. Not because my goal was wrong, but because the game I was playing was an un-winnable game (or at least it would take a TON of effort). Imagine you are trying to push a bolder up a hill. It takes a lot of effort, and any time you stop pushing it rolls back down to where it was. But the answer to the change was simple: CHANGE THE GAME. What was the game? The sales commission plan. The plan led them to sell project revenue. So what did we do? We tweaked the plans to increase the commission on recurring by 30-50% and reduce the commissions on non-recurring by 30-50% and suddenly behavior started to change. If someone on your team isn't doing what you want, there are basically only three possible reasons: 1. The game you've created is pushing them in the wrong direction. 2. They are the wrong player and shouldn't be on the team. 3. They are the right player in the wrong seat. -Every KPI you set creates a game. -Commission plans create a game. -Recognitions create a game. The more positive or negative the outcome the stronger the implications of the game. If you aren't achieving the outcome you desire, the structure of the game may be working against you, or you may have the wrong players in the wrong games and some slight tweaks may make a world of difference. ***How have you changed the game to create the right behavior?

73% of sales disputes start with one question: "Is this calculation right?" Not "am I being paid fairly?" Not "is my quota too high?" Just: can I trust this number? I learned why at Signaturit, scaling to 100M ARR. Our calculations were correct. The disputes kept coming anyway. Because trust isn't about accuracy. It's about visibility. Here's what the data actually shows: → 68% of commission queries happen within 48 hours of statement release → 89% are about "invisible" adjustments reps never saw coming → 34% escalate into formal disputes And the downstream damage? → Performance drops 23% when reps question calculations instead of selling → Turnover increases 156% among top performers who feel undervalued → 15+ hours/month of management time lost to "simple" commission questions The fix isn't better math. It's real-time visibility. Transparent calculations. Proactive communication. A full audit trail. Companies that treat commissions as a performance lever — not an admin task — see 2.3x higher sales results. Same teams. Same plans. Completely different outcomes. The only variable? Trust. What does your commission process look like right now?

My client introduced quarterly bonuses  They thought it would attract better candidates.  They lost 95% of prospects. Here’s why My client called me just last week to tell me of the change… They thought it would make the roles more attractive. But every top performer I presented it to?  Passed. Here's what went wrong: The original plan was clean. Base plus commission. Hit 99% of quota? You earn 99% of the target.  Fair and predictable. But then leadership wanted to sweeten the deal. Adding quarterly bonuses that could boost total comp significantly. The catch was this though: → You only get the bonus if you hit 100% every single quarter. Miss one quarter at 99%? You lose 15% of your annual earnings compared to the old system. When I started pitching this to seasoned sales pros, the response was immediate: "This feels like a step backward." And they're absolutely right. Under the previous structure, consistent performers hitting 95-99% still made competitive money. Now they're penalized for not being perfect. Top sales professionals want predictable paths to strong earnings. They know what their skills and effort can get them. It shouldn’t be harder to make money. So if you’re going to change your compensation model… Make sure it’s not punishing your most reliable performers.

The most expensive person on your sales team might be your best closer. If they close by discounting, you are paying commission to lose margin. Let me show you exactly what that costs. Your rep closes a deal at 15% off to get it over the line. You then pay them full commission on the discounted number. You celebrate the win, and you move on. Here is what you did not calculate: That same rep will close the next deal the same way. And the one after that. Because discounting worked, and salespeople repeat what works. Over a year, a rep closing 30 deals with an average 15% discount is not underperforming on paper. They are hitting quota. They might even be your top performer by revenue. But run the actual math. If average deal size is $50,000 and they are discounting 15% on every deal, that is $7,500 per deal left on the table. Across 30 deals, that is $225,000 a year. In margin you already earned, in value you already built, handed back to a buyer who asked for it because they learned it was available. Now compound it. That rep trains the market. Buyers talk. Procurement teams share notes. The word gets out that your number is not your real number. New prospects open negotiations at your list price expecting to close at 15-30% below it. Your pricing has been permanently undermined by the person you are rewarding most. And here is the part that breaks most CEOs when they really sit with it: Your rep does not know any of this is happening. They see a commission statement. They see a closed-won. They see themselves as a high performer. The P&L damage is invisible to them because it never appears anywhere they look. This is not a motivation problem. It is not a character problem. It is a systems and skill gap dressed up as a performance. The rep who discounts has never been shown how to run a real selling process, find pain deep enough that price becomes irrelevant. They have never learned how to quantify a prospect's cost of inaction so precisely that the buyer starts doing the math themselves. They have never experienced the close that happens without a concession because the value was so clearly established that asking for a discount would feel embarrassing. That is a trainable skill. And until it is trained, your best closer is your most expensive employee. Not on paper. In reality. So, how much of your money are your sellers selling back to the prospect? How does that make you feel? Enough to do something about? Let's Talk. As always - Habits over motivation. Systems over goals. Sales cures all.