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Compensation Plan

A compensation plan is a document provided to employees that explains precisely how they are paid. It details the compensation structure for a sales person or team. 

Typically a compensation plan lays out the following components: 

• Base salary: The base salary is how much an employee gets paid, regardless of their performance. 
• Commissions: Commissions are a percentage of some number (typically revenue) that are paid out to the employee. For example, a sales rep might earn 10% of all revenue they generate. Many commissions have accelerators or decelerators to compensate for over (or under) performance. 
• Bonuses: Bonuses are set amounts of money that are paid out to the employee for fulfilling specific actions. For example, a sales rep might receive a $1,000 bonus for hitting 100% of their quota.
• Quotas: Quotas are the expected results for an employee over a certain period of time. This is most often a revenue figure. For example, a salesperson might be expected to sell $125,000 every quarter.
• Payment rules: A compensation plan should lay out how often why someone gets paid commissions or bonuses. For example, a sales rep gets paid their commissions the last day of the month following a closed won deal. 
• Clawbacks: If there are clawbacks, or compensation that needs to be recovered by the organization from the sales rep, the rules for those should be outlined in the compensation plan as well. For example, if a client doesn't pay within 90 days, any commission earned will be deducted from the following paycheck. 
• Additional rules: Any rules related to earnings that are specific to your organization should be laid out in the compensation plan. For example, if a sales rep gets paid more for signing a multi-year deal or gets a higher commission rate for the client paying up front.

Thanks to our friends at QuotaPath for this definition! Need help with your compensation plans? QuotaPath can help.