A commission plan is the comprehensive framework that describes how commission is calculated, structured, and paid out in an organization. It defines the rules for variable compensation and ensures alignment between rep incentives and company goals. According to WorldatWork (2024), 67% of companies have formalized commission plans, and these report 34% fewer disputes than companies with informal agreements.
A well-designed commission plan specifies:
| Element | Description | Example |
|---|---|---|
| Participants | Who is covered | Account Executives, SDRs |
| Periods | Earning and payout periods | Quarterly earning, monthly payout |
| Quotas | Sales targets per period | $250,000 ARR quarterly |
| Commission rates | Percentage or amount per sale | 10% of ARR |
| Accelerators | Higher rates for overperformance | 15% above 100% quota |
| Clawback | Repayment rules | Pro rata for churn within 6 months |
| Crediting rules | Who gets credit for deals | AE 80%, SDR 20% |
A documented commission plan creates:
According to Salesforce State of Sales (2024), companies with documented commission plans have 41% lower turnover among reps than companies with informal agreements.
| Component | Value |
|---|---|
| Commission rate | 10% of ARR |
| Payout | Monthly |
| Clawback | 100% within 90 days |
| Quota Attainment | Commission Rate | Bonus |
|---|---|---|
| 0-70% | 5% (decelerator) | None |
| 70-100% | 10% | None |
| 100% | 10% | $3,000 |
| 100-120% | 15% (accelerator) | $3,000 |
| Over 120% | 20% (super-accelerator) | $6,000 |
Account Executive Plan Q1-Q4 2025
| Parameter | Value |
|---|---|
| OTE | $120,000 |
| Base salary | $60,000 (50%) |
| Target variable | $60,000 (50%) |
| Annual quota | $800,000 ARR |
| Quarterly quota | $200,000 |
| Base rate | 7.5% of ARR |
| Accelerator (100%+) | 11.25% (1.5x) |
| Clawback | Pro rata, 6 months |
| Payout | Monthly, 15-day lag |
| Aspect | Commission Plan | Compensation Plan |
|---|---|---|
| Focus | Variable commission | Total compensation |
| Includes | Rates, quotas, accelerators | Base salary + commission + benefits |
| Target audience | Sales reps | All employees |
Annually is standard. Mid-year changes should be avoided as they create uncertainty and can be perceived as unfair. Communicate changes at least 30 days before the new period starts.
Typically Sales Leadership, Finance, and HR collaboratively. Finance ensures budget sustainability, Sales ensures competitiveness, HR ensures compliance.
Yes, commission plans should be written and signed by the employee. This protects both company and employee in case of disputes.
A well-designed commission plan is the foundation for a motivated, high-performing sales team. It clearly communicates what's expected and what the reward is for delivering.
With Prowi, you can build, manage, and communicate commission plans with full transparency. Reps see exactly how their performance translates to earnings, and you maintain control over costs and compliance.