How to build a compensation structure that rewards the right behaviour, attracts the right people, and doesn't cost more than it should.
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The Side Car Compensation Playbook
Your comp plan is either motivating the wrong things or motivating nothing at all.
Most owners either underpay and wonder why they can't attract good people, or overpay and wonder why revenue still isn't where it should be. The problem is almost never the number. It's the structure. A well-built comp plan pays for itself. A poorly built one costs you twice, once in the cheque and again in the behaviour it creates.
Before you set a number, understand what you're trying to drive
Compensation is a signalling tool. Whatever you pay for, you get more of. That sounds obvious. But most comp plans aren't built with that logic applied. They're built by copying what someone else does, or by offering what the last hire asked for, or by guessing at what "competitive" means in your market.
Before you decide on any number, answer these three questions honestly.
What behaviour do you actually want?
New business acquisition? Existing account growth? A mix of both? Fast transactional volume? Long-cycle relationship selling? The answer changes the structure entirely. A rep paid purely on new business won't protect your existing accounts. A rep paid purely on retention won't hunt. Neither is wrong. Both are a design choice, and most owners haven't made that choice consciously.
What does your cash flow allow?
This matters more than what your competitors pay. A comp plan that looks attractive on paper but creates cash flow problems at month three is a bad comp plan regardless of how competitive it looks. Know your margins, know your average deal size, and know what you can afford to pay per dollar of revenue before you promise anything to anyone.
Base, commission, and OTE what they actually mean
These terms get used loosely and that causes real problems when it comes time to make an offer or have a performance conversation.
Base salary
The guaranteed amount a rep earns regardless of performance. It covers their basic financial security and gives them the stability to build pipeline rather than panic about rent. Too low and you can't attract good people. Too high and you've removed the incentive to perform. The right base depends on your market, your cycle length, and what the role actually demands day to day.
Commission
The variable component tied to results. This is where the motivational design lives. Commission can be a flat percentage of revenue, a tiered percentage that accelerates above quota, a per-deal amount, or any combination. Each structure sends a different message and drives different behaviour.
OTE (On-Target Earnings)
The total a rep earns when they hit 100% of quota. Base plus commission at quota equals OTE. This is the number you use in job postings and offer conversations. It needs to be realistic, meaning a rep who performs well should actually be able to hit it. An OTE that most reps never reach isn't a motivator. It's a disappointment waiting to happen.
A useful rule of thumb: OTE should be 1.5 to 2 times the base for most sales roles. If your base is $60,000, a realistic OTE sits somewhere between $90,000 and $120,000 depending on the role and the market.
Common structures and when to use them
There's no single right answer here. The right structure depends on your business model, your sales cycle, and what stage of growth you're in. Here are the most common options and the honest tradeoffs of each.
Structure |
How it works |
Best for |
Watch out for |
|---|---|---|---|
|
Base + flat commission
|
Set percentage on every dollar of revenue |
Simple businesses, consistent deal sizes, early-stage teams |
No incentive to push harder above quota |
|
Base +tiered commission
|
Rate increases as rep hits higher thresholds |
Teams where you want to reward overperformance |
Reps chase deal count over deal quality |
|
Draw against commission
|
Advances against future commission during ramp |
Long cycle businesses onboarding new reps |
Creates debt if rep underperforms |
|
Revenue share
|
Percentage of total book each month |
Account management and retention roles |
Doesn't incentivise new business acquisition |
Setting quota the part most owners get wrong
Quota is the performance standard your comp plan is built around. Get it right and it motivates. Get it wrong and it either demoralises a rep who can never hit it or costs you money because it's so easy to beat that commission becomes a given rather than an incentive.
60–70%
Of team should hit quota
3
mo
Typical ramp to full quota
Quota should be achievable but not automatic
A well-set quota should be hit by roughly 60 to 70 percent of your team in a given period. If everyone is hitting it, it's too low. If nobody is hitting it, it's too high or your pipeline isn't being managed well enough to give reps a fair chance. Either way, the quota isn't doing its job.
Build in a ramp period
New reps don't hit full quota on day one. A ramp period gives them time to build pipeline and learn the product before they're held to full performance standards. A typical ramp might be 50% of quota in month one, 75% in month two, and 100% from month three onward. The ramp should be long enough to be fair but short enough that you're not subsidising someone indefinitely.
If your reps are consistently missing quota and you're blaming the reps, check the quota first. Quota t hat was set in an optimistic moment and never revisited is one of the most common sources of sales team frustration and turnover.
Accelerators and bonuses
Once the base structure is in place, accelerators and bonuses are the tools you use to drive specific outcomes beyond hitting quota.
Accelerators
An accelerator increases the commission rate above a certain threshold. A rep earns 8% commission on revenue up to quota, then 12% on everything above it. This rewards overperformance without changing the baseline cost structure until a rep has already earned the right to it. Accelerators are one of the most effective motivational tools available, and most small businesses don't use them.
SPIFs
Short-term cash bonuses tied to a specific behaviour for a specific period. "Close three deals this month and get a $500 bonus." SPIFs work best when they're rare enough to feel meaningful and clear enough that the rep knows exactly what they have to do to earn them. Don't use them for behaviour that should just be part of the job.
Your comp plan is either working or it isn't. Most owners don't know which.
If your reps aren't hitting quota, if you're losing candidates at the offer stage, or if your top performer just left for more money somewhere else, the comp plan is worth an honest look. Sometimes the fix is simple. Sometimes it requires a full redesign. Either way it starts with understanding what the current structure is actually driving.
What competitive actually means in your market
Every owner wants to pay competitively. The problem is that competitive is a moving target and most owners are benchmarking against the wrong things.
01
Industry and role matter more than geography
A B2B sales rep in a smaller market competes for the same talent as one in a major city, because that person can work remotely and will compare offers across both. If you're benchmarking against local businesses only, you may be significantly off market without knowing it.
02
Total compensation matters more than base
A candidate weighing two offers is looking at the full picture. Base, OTE, benefits, flexibility, growth potential, and the quality of the product they'll be selling. A lower base with a credible OTE and strong upside can beat a higher base with a weak commission structure. Lead with total earnings potential in conversations, not just the base.
03
How to find real market data
Look at job postings in your industry and role category that include compensation ranges. Check LinkedIn Salary and Glassdoor. Talk to recruiters who work in your sector. They have better real-time data than any published report and most will share it in a short conversation if you ask directly.
The conversation most owners avoid
Compensation conversations are uncomfortable. Most owners avoid redesigning a comp plan because it means having a direct conversation with a rep about why things are changing, especially if the change is less favourable to the rep than the current arrangement.
Here's the honest version of that conversation: if your comp plan was built without proper thought and you've realised it's driving the wrong behaviour or costing more than it should, you have the right to change it. What you don't have the right to do is change it without notice, without explanation, and without acknowledging the impact on the person it affects. Give reasonable notice. Explain the reasoning clearly. Be willing to grandfather the current plan for a defined transition period if the change is significant.
If you've been putting off fixing your comp plan because of the conversation it requires, the longer you wait the harder that conversation gets. The plan doesn't fix itself in the meantime. It just keeps driving whatever behaviour it's currently driving.
Compensation isn't the only thing that motivates a sales rep. Recognition, autonomy, quality of product, strength of leadership, and genuine growth opportunity all matter. But compensation is the clearest signal you send about what you value, and a broken comp plan can undermine all of the other things you're doing right.
Get the structure right. Pay people fairly for the outcomes you actually need. Review it regularly. And when something isn't working, have the conversation early rather than letting it fester until someone walks out the door and you're starting this process over again.
Not sure if your comp plan is working?
Most owners have a gut feeling about this but haven't looked at it objectively. If you want a straight conversation about whether your current structure is driving the right behaviour, book a call.