At many organizations, leadership views incentive pay as a reward that incentivizes the sales team to sell. While that’s certainly true, in many enterprise sales organizations, that viewpoint only captures half of the picture. Incentive pay is a powerful tool that, when designed strategically, can help you reach business goals that go beyond simply “selling more.”
A well-designed incentive compensation plan guides your sales team toward the products and solutions that you want them to sell, in order to enable revenue growth, market expansion, and a mutually-beneficial relationship between you and your sellers. A poorly designed incentive plan, on the other hand, creates confusion for your sellers and compensation team, rewards the wrong behavior among your sales reps, increases compensation costs, and can make it more difficult for you to understand whether or not the plan is actually improving your sales team’s performance.
Are you currently rethinking what incentive pay should look like within your organization?
Think of the guide below as a comprehensive primer on all things sales incentives. In it, we define incentive pay, take a closer look at the different types available to your organization, and explore the relationship between incentives and sales performance. We also walk through some of the common reasons incentive compensation plans fail and offer concrete guidance you can use to re-evaluate your incentives strategy.
Incentive pay is additional variable compensation outside of an employee's base salary, which is used to encourage (or incentivize) the employee to work toward specific goals. Incentive pay can be one-time or ongoing in nature, depending on the specific type of pay and how an organization's incentive compensation plan is designed.
Common examples of incentive pay include:
In each case, the goal of incentive pay is to encourage employees to work toward specific outcomes, and to reward them once those outcomes are met. It’s a central piece of any sales compensation plan.
In many sales organizations, commissions are often the most familiar form of sales incentive, but they’re only one type of incentive pay. Depending on the role and business goal, organizations may also use performance bonuses, accelerators, SPIFFs, team-based incentives, or other structures as part of the incentive compensation plan.
Consider how you might leverage each of the following types of incentive pay to better incentivize your sales team to work toward your organization's business, profit, and revenue goals.
Sales commissions are a form of variable compensation that essentially entitles your sellers to a percentage of each sale they make. That percentage can vary based on the product, the deal size, the contract terms, or how much the rep has already sold that period. Most enterprise plans calculate commission using a formula tied to revenue, margin, or quota attainment. Commission-based pay can be structured in a number of different ways, most commonly:
Sales leaders use commission to drive specific behaviors in their sales reps, whether that's prioritizing new logos, protecting margins, or accelerating deals in key product lines. How a company structures commission depends on the complexity of the sales process, the length of the sales cycle, and the company’s go-to-market model. While commission is most commonly associated with sales teams, many organizations extend variable compensation to customer success, partner, and solution consultants as well.
Learn how the right commissions software supports your sales planning and performance.
Performance bonuses are a type of monetary reward that sellers can earn by reaching or exceeding certain milestones or goals, such as hitting their sales quota or exceeding a revenue target. Bonuses are often calculated as a set percentage of the seller’s base salary, but can also be flat figures. They’re often paid on a quarterly or year-end basis, typically in lump sum payments paid on top of the seller’s base salary. Depending on the role and how an incentives plan has been designed, bonuses may supplement commissions or serve as the primary form of variable pay.
Organizations can offer individual bonuses to incentivize individual sellers to reach targets, or team bonuses to incentivize the entire team.
Accelerators are a type of incentive that increases a seller’s commission rate for a specified period of time once they’ve reached their quota or surpassed another performance threshold. Their purpose is to incentivize sellers to reach their quota, and to continue selling aggressively once they reach it. They can also help prevent sandbagging, which is when a salesperson holds back a sale until their quota resets.
A SPIFF, or Sales Performance Incentive Fund, is a type of short-term incentive that’s specifically designed to motivate sellers to reach a short-term goal. They’re typically a cash reward on top of a seller’s base pay or commissions, though non-cash SPIFFS (like vacations, tickets to events like sports games or concerts, and gift cards) are often sometimes offered.
Importantly, SPIFFs are temporary incentives often offered for a short period of time, which can range from a few days to a few weeks or a single campaign, depending on the goal you’re trying to reach. SPIFFS are commonly offered to incentivize:
Team-based incentives are any incentive that’s designed to reward the entire sales team instead of (or in addition to) individual sellers. They can include things like team performance bonuses, team SPIFFS, and group experiences like team dinners or entertainment outings. The goal of team-based incentives is to encourage teamwork, which can be especially important for enterprise sales where multiple sellers or other individuals (business development representatives, account managers, account executives) work the same deal.
Profit-based incentive models tie seller compensation (like commissions and bonuses) to the profitability of each sale rather than the top-line revenue. They can be very effective in incentivizing sellers to sell higher-margin goods and services while discouraging overzealous discounting. For many organizations, they’re important for supporting profitable growth.
An MBO, or Management by Objectives, is a goal-based incentive or bonus mechanism that’s specifically designed to incentivize and reward behaviors that might not be directly tied to revenue. For example, a business might offer a cash bonus to sellers that reach specific strategic goals, such as completing a certain number of qualified customer meetings or developing account plans for priority accounts. Alternatively, a business might offer a cash bonus to sales reps that show high usage rates of new technologies, like CRMs. MBOs can be very effective at ensuring that sellers are aligned to a business’s strategic goals other than just hitting sales targets.
Check out this article for a quick refresher on other terms related to sales compensation.
Your incentive compensation strategy acts as a pretty clear signal telling your sales team which behaviors, products, deal types, and customer outcomes matter most to your organization. But for that signal to influence seller behavior, there should be a clear connection between the business goal you’re trying to reach, what the incentive plan measures and rewards, and the decisions your sellers make about which accounts, products, and opportunities to prioritize.
Start with the business goal, then work backward to the seller decision that could help move it.
Imagine, for example, that your organization wants to drive more profitable growth. An incentive compensation plan that rewards sellers based solely on increased revenue might encourage them to close larger deals, but it could also incentivize them to offer larger discounts in the process. In this case, tying incentive pay to gross margin instead of simple revenue growth encourages sellers to protect margin as they negotiate and structure deals. Alternatively, if new logo acquisition is a priority, a sales incentive tied specifically to new customer revenue can encourage sellers to spend more of their time prospecting and pursuing new accounts.
Because incentivizing a metric that sits largely outside of a seller’s control may add complexity to your compensation plan without meaningfully changing how they work, you’d be better served by tying incentives to outcomes or behaviors that your sellers can actually influence. When sellers understand what actions they can take to earn a reward, your incentive strategy becomes much more useful as a tool for shaping their behavior.
For business leaders, that means incentive compensation can do more than just encourage sellers to “sell more.” A well-designed plan can facilitate many strategic goals, including:
It can also improve sales productivity and focus sellers on the segments and products you want them to push. And when incentives consistently direct seller effort toward the outcomes built into your revenue plan, they can also contribute to more predictable revenue performance.
In other words, how you structure your incentive compensation plan helps determine not only how much your team sells, but what they sell, who they sell it to, and how profitably they sell it.
Whether you’re building a brand new incentive compensation plan or you want to fine-tune an existing plan, the framework below can help you ensure that the incentive compensation plan you implement is aligned with your current and future business goals: protecting margin, growing a priority product or segment, increasing expansion revenue, supporting a new sales motion, etc.
Before designing your incentive compensation plan, you need a clear sense of what goals you’re trying to support. This should, of course, include revenue targets. But it’s also important to consider what other strategic initiatives your incentive pay structure might be able to support, such as a product launch, customer retention, etc. That way, you can be sure that the incentive compensation plan you implement is one that’s specifically designed to help you reach those goals.
Some questions to consider as you choose the right incentive structure include:
Because the success (or failure) of your compensation plan can affect so many departments within your organization, it’s important that you include all of the relevant stakeholders in these early discussions. In addition to sales leaders, this might include marketing, finance, RevOps, HR, and others. While not every strategic initiative is directly touched by your incentive compensation plan, you’d be surprised how often incentives can be a motivating factor.
Armed with your goals and your answers to the questions above, you can then choose the payout mechanics that will make up your policy. This can include a single mechanic (such as commissions) or multiple mechanics, all depending on your goals.
Your incentives plan is a part of your larger sales planning ecosystem, which includes everything from your sales territories and quotas to your coverage model and overall compensation strategy.
Each of these pieces influences the others. For example:
With this in mind, even a well-designed incentive plan can underperform if the territories and quotas beneath it aren’t aligned. A seller assigned to a territory with limited account potential, for example, might struggle to reach their quota regardless of how motivating your incentive structure is. Likewise, an incentive designed to encourage new logo acquisition may have limited impact if sellers don’t have sufficient whitespace or enough prospects to target within their assigned territories.
With this in mind, any time you redesign or make adjustments to your incentives plan, take a look at the other pieces of your sales plan as well. Connecting compensation, incentives, quotas, territories, account potential, and coverage can help ensure that sellers have both a clear reason to pursue the outcomes you want, as well as a realistic opportunity to achieve them.
Before finalizing your plan, it’s important to model the associated costs under a variety of scenarios to ensure that it’s incentivizing mutually-beneficial sales instead of unprofitable revenue growth. You want a balance, and finding that balance requires modeling.
In practice, this scenario modeling might look something like:
Scenario modeling can be difficult when it’s done, especially for complex compensation plans. That said, the job can be made easier with the right incentive compensation management software. For example, Varicent’s platform comes with built-in AI and predictive analytics that empower you to test your plan structure and forecast outcomes before the quarter even begins.
Once you’ve finalized your plan, you’ll want to communicate how it’ll work to your sellers. Sellers should have a clear understanding of:
They should also understand how different levels of performance, from falling short of their quotas to meeting or exceeding targets, will ultimately affect their earnings.
In part, this is to document the mechanics of the plan. But more importantly, it makes it easier for sellers to understand what they need to do to succeed. Keeping that logic as clear as possible supports seller trust, reduces the frequency of compensation disputes, and generally makes it more sustainable to administer the plan.
It’s also important to acknowledge that your incentive compensation plan may change as you reach goals or as priorities and market conditions shift. To preserve seller trust and motivation while limiting seller attrition, communicate those changes quickly and clearly. Key points to include are:
Manually calculating payouts can be complicated and time-consuming, especially if your compensation plan includes complex commission structures or multiple incentive types. That increases the risk of costly errors, approval gaps, and payout delays, which can all lead to disputes about compensation and, ultimately, damaged seller trust.
Automation can be a great way of reducing the risk of error while simultaneously speeding up your approvals process. An incentive compensation management platform that allows you to apply your incentive logic quickly and consistently regardless of its complexity across all of your plans can facilitate this.
With an AI-native platform like Varicent’s, for example, it’s possible to automate many individual steps, including:
While modeling can help you anticipate how your plan might perform, the only way to really know if it’s adequately incentivizing your team is to monitor and track the plan’s performance over time.
Start by identifying the KPIs you expect your plan to move. Benchmark those KPIs before you make any changes to your plan, and then monitor them after your changes have been implemented.
Just keep in mind that a change in a KPI doesn’t necessarily mean that your incentive caused that change. Territory potential, seasonality, pricing changes, marketing activity, and shifts in customer demand can all influence performance. To get a clearer picture, compare results across roles, territories, segments, or groups with different levels of exposure to the incentive. Look at whether seller behavior changed in the way you intended, whether the underlying business result improved, and whether that improvement was enough to justify the additional payout cost.
Here, again, the right incentive compensation management software can make all the difference. Varicent’s platform, for example, can help leaders compare plan performance across the business, identify patterns in seller behavior and results, and spot incentives that may warrant further investigation or adjustment. That gives you better information to fine-tune your plan over time without assuming that correlation alone proves which incentive caused a particular outcome.
Consider two enterprise organizations launching a new product. Both already use commissions and quota-based incentives, but the new offering requires sellers to learn a different value proposition, identify the right accounts, and begin introducing it to customers.
Organization A leaves its compensation plan unchanged. Because sellers can reach their goals more predictably by selling established products, they give the new offering less attention. That doesn’t necessarily mean the product will fail, but it may be difficult for leaders to tell whether slow adoption reflects weak customer demand, limited seller readiness, or a lack of incentive to prioritize it.
Organization B first identifies the behavior it wants to encourage. It introduces a temporary incentive tied to an action sellers can influence, such as creating qualified opportunities for the new product or including it in relevant deals. The incentive runs for a period that reflects the organization’s sales cycle and is supported by seller training, clear account targeting, and defined crediting rules.
The temporary incentive doesn’t guarantee that the product will succeed. However, it gives sellers a clearer reason to prioritize the new offering and helps leaders assess whether the launch is gaining traction.
This is, of course, a simplified example. Most organizations are juggling multiple goals at once, and may have more complicated incentive plans in place than the purely commissions- or bonus-driven approach highlighted above. Other approaches might include leveraging:
In any case, the moral is the same: A policy informed by your goals is a policy that can help you reach them.
According to Varicent’s 2025 Market Spotlight, 39 percent of surveyed organizations believe that misalignment between sales, marketing, and operations makes it harder to hit the organization’s targets. Another 27 percent blame unrealistic quotas, and an additional 27 percent point toward overly bureaucratic processes that slow down the sales effort. While there are many potential causes for these challenges, a big one can be incentive plans that have partially or completely failed.
As you design your policy, consider these challenges that commonly lead to failure:
If there’s a disconnect between your business objectives and the behaviors that your plan incentivizes, it could mean that you’re rewarding behaviors that don’t support your current revenue priorities. In a worst-case scenario, your payout costs may be rising without generating better revenue outcomes for your business.
A plan designed around top-line commissions, for example, might incentivize your sales reps to sell more. And in many cases, that may be exactly what you want. But if your goal is profitable growth instead of revenue growth, you need to give them a reason to protect the margin of each sale.
The same principle applies beyond the initial sale. Depending on what your sellers can reasonably influence, your organization might want to reinforce outcomes like product adoption, expansion, or retention alongside new revenue. The goal is to identify the behaviors and results that matter most to your strategy, determine where sellers can meaningfully influence them, and make sure your incentives reinforce those priorities.
Sometimes, the difference between a plan that fails and a plan that succeeds comes down to the adjustments and fine-tuning that can only be made after a plan goes live. But evaluating performance requires more than looking at overall quota attainment or whether a particular KPI moved. Those measures tell you what happened, but they don’t necessarily tell you why it happened or whether the results are sustainable.
Compensation leaders need enough visibility to look beneath those topline results. That might mean comparing attainment across sellers, roles, territories, and segments; considering whether quotas accurately reflect territory potential; and looking for relationships between the behaviors being incentivized and the outcomes the business cares about. It’s also important to compare those results against payout costs to understand whether additional compensation spend is producing sufficient business value.
You want to identify patterns that help you understand where the plan appears to be working as intended, where structural factors may be influencing performance, and which incentives may warrant further investigation or adjustment. Without that context, you risk fine-tuning your plan based on an incomplete picture of what’s actually driving performance.
Not sure whether or not your incentive compensation plan is incentivizing sellers the way you expect it to? Ask yourself these questions:
Your incentives plan isn’t just about compensating your sales team. When they’re aligned with your business goals, backed by data, and streamlined through automation, incentives become a lever that you can pull to encourage the sales behaviors you want to see, discourage those you don’t, and work toward strategic priorities.
The question is: How do you get there? For most enterprise teams, the answer lies in ensuring that you’re choosing the right incentive compensation management software.
Varicent’s platform is uniquely positioned to help you design, manage, and optimize your incentive compensation plan at scale through:
Ready to learn more about how Varicent can support your revenue and sales goals? Explore our product tours or book a free demo today.