Sales commission structures seem like a straightforward business problem. Pay people for what they produce, align incentives with company goals, don't overcomplicate it. In practice, a poorly designed commission structure is one of the most reliable ways to create exactly the behaviour you were trying to prevent.
This guide is for sales leaders designing or redesigning a commission structure. It's not a formula (every business has different economics and different sales motions) but it's a set of principles that hold across most field sales contexts.
Principle 1: Commissions measure what you count, not what you value
Every commission structure has unintended consequences because it's impossible to write a formula that perfectly captures everything you actually value. You value revenue, but you also value retention, margin, customer satisfaction, and rep development. Commissions can only pay for what's measured, so they always optimise for a subset of what matters.
The practical implication: before designing the structure, write down the three or four behaviours you most want to encourage and the two or three you most want to prevent. Then stress-test your proposed structure against both lists. What does a rep who is purely maximising their commission under this structure look like? If that rep is causing problems you don't want, the structure needs adjustment.
Principle 2: Cliff structures create end-of-period dysfunction
A cliff is a threshold below which commission rate is lower. For example, zero commission until you hit 70% of quota, then a flat rate above it. Cliffs are common because they feel like they prevent paying commission on inadequate performance. What they actually do is create a binary at the threshold that distorts behaviour dramatically in the final weeks of every period.
Reps close to but below the cliff will do almost anything to cross it. Including pushing deals that aren't ready, offering discounts they shouldn't, or pulling forward Q1 commitments into Q4. Reps who miss the cliff by a margin in the first half of the period often give up on the period entirely and start sandbagging for the next one.
A smoother accelerator structure (where commission rate increases gradually as attainment rises, with no cliff) produces more predictable behaviour throughout the quarter and almost the same economic outcome for the company.
Principle 3: Complexity is a tax on trust
Every additional variable in a commission structure is a variable reps have to track, model, and potentially dispute. Structures with product-specific rates, territory modifiers, team bonuses, and multi-year deal haircuts quickly become something reps can't calculate themselves. When a rep can't verify their own commission, they either distrust the number or spend significant time auditing it. Neither of which is where you want their mental energy.
Principle 4: Separate new business from retention
Many field sales teams pay commission on both new logo acquisition and renewal revenue from the same pool. This creates a consistent problem: reps learn quickly that renewals are lower-effort than new business, and they tilt their time accordingly. Your most productive reps become account managers by stealth.
A cleaner structure separates the two motions with different rates that reflect the actual effort required. New business commission is higher because the work is harder and riskier. Renewal commission is lower but reliable. It rewards reps for maintaining the relationships they built. The separation is explicit about what the company values and removes the subtle incentive to coast on the existing book.
Principle 5: Cap structures punish your best reps
Commission caps (maximum earnings regardless of attainment) seem financially prudent. In practice they cause two problems. First, they remove incentive to push past the cap, which means your highest-performing reps slow down at exactly the point where you'd most like them to accelerate. Second, once a cap is known in the market, it becomes a recruitment liability. The best reps, who know they can produce above cap, will go where earnings are uncapped.
If the concern is that a rep might earn an "embarrassing" amount because of a windfall deal or a territory anomaly, the right fix is to address the anomaly. Adjust territories, normalise for windfall accounts, build in deal size modifiers. Not to cap the upside for everyone.
Getting the review cycle right
Commission structures should be reviewed annually at minimum, and redesigned whenever the sales motion changes significantly. A structure designed for a transactional product doesn't work for a complex enterprise sale. A structure designed for a two-person team starts generating dysfunction at twenty people.
The review should include the reps, not just leadership. The people running the structure every day see the dysfunction it creates most clearly. Ignoring that input produces structures that look logical on paper and create predictable problems in the field.