Sales Compensation

Scope

Covers

• Designing compensation plans for revenue roles (typically SDR/BDR, AE, AM/CSM with expansion)

• Setting OTE, base/variable mix, quota, and ramp

• Defining commission mechanics (crediting rules, accelerators, clawbacks, payout timing)

• Aligning incentives with long-term customer value (retention / NRR), not just bookings

• Producing rep-facing plan docs + admin rules so payouts are actually operable

When to use

• “Design a comp plan for our first AEs/SDRs.”

• “What should our OTE and base/variable split be?”

• “Set quotas and a ramp plan for new reps.”

• “Create accelerators + rules so reps don’t game discounting.”

• “Our reps close bad-fit deals that churn—align comp with retention/NRR.”

When NOT to use

• You need legal/tax/HR advice, employment compliance guidance, or jurisdiction-specific plan language (use qualified professionals)

• You’re designing executive compensation or equity plans (different problem)

• You don’t yet have basic GTM foundations (ICP, pricing, what counts as a closed-won) — do that first, then return

• You want an overly complex “formula soup” plan that can’t be explained in one page or administered reliably

Inputs

Minimum required

• Company stage + GTM motion (inbound/outbound/PLG/enterprise) and primary sales roles

• What you sell + pricing model + typical ACV/ARR and sales cycle length

• Your economic constraints: gross margin, CAC payback target (or runway), budget for sales comp

• Target outcomes for the period (bookings/revenue/NRR) and the time horizon you care about (e.g., 90-day retention, annual renewals)

• Current baseline (if any): pipeline conversion, win rate, ramp time, churn/NRR

• Constraints: simplicity tolerance, payout timing preference, risk tolerance (for the company and for reps)

Missing-info strategy

• Ask up to 5 questions from references/INTAKE.md, then proceed.

• If key data is missing, make explicit assumptions and include:

• Assumptions & unknowns

• Sensitivity ranges (e.g., quota/rates under low/base/high scenarios)

• Validation plan (what to measure in the next 30–90 days)

Outputs (deliverables)

Produce a Sales Comp Plan Pack in Markdown (in-chat; or as files if requested), in this order:

• Context snapshot (roles, stage, goals, constraints, time horizon)

• Comp philosophy (what behaviors you want; what you want to prevent)

• Role → metric mapping (what gets paid on, and why it’s controllable)

• OTE + pay mix table (base/variable split by role + rationale)

• Quota + ramp model (quota by period + ramp schedule + any draw/guarantee)

• Commission mechanics spec (crediting, rates, accelerators, splits, discount policy, payout timing, clawbacks)

• Retention-alignment addendum (choose one approach; define measurement + timing)

• Admin & governance (required CRM fields, payout process, disputes, exceptions, change control)

• Rep-facing one-pager + FAQ (copy/paste)

• Risks / Open questions / Next steps (always included)

Templates: references/TEMPLATES.md

Workflow (7 steps)

1. Intake + plan boundaries (what problem are we solving?)

• Inputs: User context; references/INTAKE.md.

• Actions: Confirm roles in scope, selling motion, time horizon (bookings vs retention), budget constraints, and “must-not” behaviors (discounting, churny deals, channel conflict). Identify what data you do/don’t have.

• Outputs: Context snapshot + assumptions/unknowns + decision on time horizon.

• Checks: Success is measurable (who/what/by when) and the plan scope is explicit.

2. Define role responsibilities + “what gets paid on”

• Inputs: Role definitions; pipeline stages; revenue recognition basics; retention model.

• Actions: Choose 1 primary performance metric per role (e.g., ARR bookings, qualified meetings, expansion ARR, gross profit). Define “crediting” rules (when a deal counts, splits, renewals).

• Outputs: Role → metric mapping + crediting rules draft.

• Checks: The metric is (a) measurable, (b) attributable, and (c) reasonably controllable by the rep.

3. Set OTE + base/variable mix (pay risk where it belongs)

• Inputs: Talent market bands (if known), role seniority, sales cycle, role risk, stage.

• Actions: Set OTE targets and the base/variable mix per role. Choose a default mix (often ~50/50 for many AE roles) and adjust based on cycle length, product maturity, and expected rep autonomy.

• Outputs: OTE + pay mix table with rationale and guardrails.

• Checks: OTE is economically viable for the business and believable to candidates; pay mix matches controllability and sales cycle length.

4. Build quota + ramp model (make “on target” realistic)

• Inputs: Targets; baseline conversion (or assumptions); expected ramp time; territory/segment definitions.

• Actions: Create a quota model (top-down + bottom-up cross-check). Define ramp schedule, draw/guarantee (if used), and what happens if the plan changes mid-year.

• Outputs: Quota + ramp tables (low/base/high scenarios).

• Checks: A rep at OTE can realistically hit quota with the assumed pipeline and conversion.

5. Define commission mechanics (simple, compute-able, enforceable)

• Inputs: OTE/Quota; metric definitions; discount/margin constraints.

• Actions: Set rates, accelerators/decelerators, and payout timing. Add guardrails: discount approval thresholds, deal qualification minimums, splits/overlays, clawbacks/chargebacks, and edge-case rules.

• Outputs: Commission mechanics spec + 2–3 worked payout examples.

• Checks: A Sales Ops/admin can calculate payouts from CRM data without manual interpretation.

6. Add retention/quality alignment (avoid paying for churn)

• Inputs: Retention/NRR goals; churn timing; implementation/onboarding reality; data availability.

• Actions: Choose one retention-alignment approach (e.g., partial holdback until 90 days, commission adjustment on early churn, pay on collected revenue, or NRR multipliers). Define measurement windows and how disputes are handled.

• Outputs: Retention-alignment addendum (chosen approach + rationale + admin rules).

• Checks: The approach is understandable to reps and proportional to their influence on retention.

7. Quality gate + finalize (rep-ready + admin-ready)

• Inputs: Draft pack.

• Actions: Run references/CHECKLISTS.md and score using references/RUBRIC.md. Produce the rep-facing one-pager + FAQ. Always include Risks / Open questions / Next steps and a 30–90 day validation plan.

• Outputs: Final Sales Comp Plan Pack.

• Checks: The plan can be explained in one page, computed from CRM fields, and aligns incentives with business + customer outcomes.

Quality gate (required)

• Use references/CHECKLISTS.md and references/RUBRIC.md.

• Always include: Risks, Open questions, Next steps.

Examples

Example 1 (first AE comp plan, seed-stage SaaS):

“Use sales-compensation . We’re seed-stage B2B SaaS, $12k ACV, 45-day cycle. Hiring first 2 AEs. Goal: $600k ARR this year. Output: a Sales Comp Plan Pack with OTE/pay mix, quotas+ramp, commission mechanics, and a rep-facing FAQ.”

Example 2 (retention-aligned comp, churn problem):

“Use sales-compensation . Reps optimize for bookings and we churn in the first 90 days. We want comp to reflect retention/NRR without being overly complex. Output: a Sales Comp Plan Pack with a retention-alignment addendum and clear admin rules.”

Boundary example:

“Write a legally binding compensation agreement for California employees and tell me what’s compliant.”

Response: explain this skill produces a comp-plan spec and rep-facing materials, but legal/compliance review must be done by qualified counsel.