Top Founder Questions About Sales Comp Plans—Answered

Tactical advice for building plans that motivate and align your team.

Sales compensation is one of the most pivotal, and tricky, parts of building a successful go-to-market engine. During a recent Catalyst session on sales comp plans, we spent an hour talking through the common challenges founders face and practical ways to address them. Today, we’re going to do a bit of a rapid-fire session, tackling key questions from that discussion to help you design comp plans that motivate your team, align with business goals, and set your company up for success.

Let’s get into it.

Q: How do we create an effective first sales comp plan?

A: The good thing about salespeople is they do what you pay them to do. The bad thing? If your comp plan is poorly designed, they’ll still do what you pay them to do—and it might not be what you actually need for the business. It’s up to you to set up the right incentives to align outcomes.

Early-stage comp plans must prioritize clarity. If a sales rep doesn’t understand how they’re going to get paid, you aren’t incentivizing any behaviors. Simplicity is key. My advice is to keep it to one or two main priorities, like new revenue or retention. Avoid overcomplicating with five different metrics or vague performance targets.

Lastly, don’t shy away from accelerators. If your top performers can exceed quota, reward them for it. A good plan creates alignment: if your reps are making a lot of money, your business should be thriving too.

Q: What’s the best way to set quotas for early-stage sales teams?

A: This is where it gets tricky for founders hiring their first AEs. You’re trying to back into a reasonable quota without fully understanding sales capacity. For early-stage teams, I recommend starting with a 3–5x OTE-to-quota ratio. For example, if an AE’s On-Target Earnings (OTE) are $100K, their annual quota should fall between $300K and $500K. Ratios below 3x are dangerous territory—they make it impossible for reps to be profitable.

If you’re still testing demand gen and figuring out your pipeline, start small. Hire one AE, track their results, and use those data points to set realistic quotas for future hires. And one tip: stretch goals can motivate, but unattainable quotas crush morale. Aim for at least 80% of your team hitting 80% of quota.

Q: Should we pay commissions on bookings, billings, collections or performance?

A: This one comes up all the time, and it’s a balancing act. Do you pay reps as soon as they close a deal (bookings), when the invoices are sent (billings) or when the cash hits the bank (collections)? Bookings are simpler and more motivating for reps. They close a deal, they get paid. But collections ensure you don’t pay for deals that go bad—especially if the customer doesn’t pay.

You can also try a hybrid model. For example, pay half at booking and the other half upon collection. If clawbacks are becoming common, it’s a sign your targeting or deal qualification needs work. The goal should be to avoid clawbacks entirely—they create unnecessary tension with your team.

Q: How can we avoid common pitfalls in designing sales comp plans?

A: Comp plans always seem airtight—until you roll them out. Then, unintended consequences start popping up. For example, I worked at a company that wanted to incentivize reps to sell a new product. To encourage adoption, we offered a 2% higher commission on any deal that included the new product. Sounds great, right? Well, one rep figured out how to game the system. They started including the new product on deals but discounted it to $0, which still qualified them for the higher commission rate on the rest of the deal. Technically, they followed the rules, but it wasn’t the behavior we were trying to drive.

Before launching a plan, test it. Look at past deals and ask: “How would this comp plan have paid out?” Also, ask your reps how they’d game the plan—they’ll find angles you never imagined. Finally, lock in a consistent payout schedule. Nothing destroys trust faster than late or inconsistent commission checks.

Q: When should spiffs be used, and how do they complement a comp plan?

A: Spiffs, short-term incentives, are great for driving specific behaviors. Say you want to test annual contracts instead of the standard month to month. Offer a spiff or additional commission percentage for any deal that has an annual contract and upfront payment. Or, if you want to boost summer pipeline generation, run a contest where reps compete for a prize.

That said, don’t pay for behaviors reps should already be doing. BDRs setting meetings? That’s already the job and part of their comp plan. Spiffs should push for something new or strategically critical, like entering a new market or upselling a new product.

Q: What are best practices for variable compensation for non-sales roles?

A: This is an overlooked area, but variable comp for roles like account management and marketing can drive alignment with business goals. For AMs, I suggest a 70/30 or 80/20 split between base and variable, tied to metrics like NRR or upsell performance. For marketing, variable pay should tie to company outcomes, like revenue, rather than just lead generation. A strong marketing-sales partnership is critical, and comp alignment is a great way to reinforce it.

The best sales comp plans align your team’s motivation with your business objectives. Take the time to understand your reps’ capacity, market rates, and unit economics, and don’t be afraid to iterate.

For more tools and templates, check out resources on the Stage 2 website or our portfolio company, QuotaPath.

Until next week!