But finding the right sales compensation model can be tricky. There are many options, from commission-only plans to hybrid models. Plus, as your business grows, you may need to adjust your plan to stay competitive. In this guide, we’ll break down popular sales compensation models, explain how commission works and is calculated, and discuss tips on how to structure sales compensation.

Why Sales Compensation Matters

Sales compensation is more than just a paycheck — it’s a strategy that directly impacts your company’s bottom line. The right plan can motivate your sales team, boost productivity, and drive revenue growth. On the other hand, a poorly structured plan can lead to low morale, high turnover, and inconsistent performance. That’s why it’s crucial to choose a compensation model that aligns with your business goals and industry needs.

Straight Salary (or Hourly Wages)

The straight salary model is one of the simplest ways to pay sales representatives. In this model, employees receive a set salary, with no extra pay for sales performance. In some industries, like retail, employees may get paid hourly instead.

One of the biggest benefits of the straight salary model is predictability. It’s easy to budget for payroll, and employees know exactly how much they’ll make. This model works well for jobs where building relationships is more important than closing quick sales, or where sales cycles are long.

However, without financial incentives, employees might not feel motivated to push for more sales. This could lead to stagnant performance and fewer new customers. Some companies use this model for sales roles focused on customer service or account management rather than aggressive selling.

Best Practices for Straight Salary Compensation:

• Clearly define roles and expectations to maintain productivity.
• Implement performance reviews to encourage continued effort.
• Offer non-monetary incentives, such as recognition or professional development opportunities.

Commission-Only Compensation

In the commission-only model, employees earn money solely based on their sales. There is no base salary or hourly wage. This structure is popular with startups or businesses looking to expand quickly without a large payroll.

The main draw of commission-only plans is clear: higher sales mean higher earnings. It’s an attractive option for go-getters who thrive on performance-based income. However, it can also result in high turnover, as employees may leave if they can’t maintain steady sales.

This model works well when sales cycles are short, products are in high demand, or the potential earnings are significantly high. However, it requires a strong self-motivated workforce and clear performance tracking.

Many businesses choose a salary plus commission model. In this setup, sales representatives get a base salary along with commissions for meeting or exceeding sales targets. This combination provides stability while still offering incentives to increase sales.

This model helps reduce turnover, as employees feel more secure with a guaranteed income. At the same time, they’re motivated to go beyond their targets to earn more. The downside is that tracking commissions accurately can be complicated and may increase payroll expenses.

Effective Strategies for Implementing Salary Plus Commission:

• Use a commission calculator to maintain accuracy and transparency.
• Offer tiered commissions to reward higher performance levels.
• Set clear sales goals and provide training on commission calculations.

Salary Plus Performance-Based Incentives (Hybrid Model)

The hybrid model combines a base salary with various incentives. These can include bonuses for hitting specific targets, profit-sharing when the company does well, or long-term perks like stock options.

According to Xactly’s Sales Compensation Report, many companies are moving toward performance-based pay structures to keep top talent while driving key business objectives. A well-designed hybrid model can help keep employees motivated and invested in the company’s success.

Hybrid Compensation Tips:

• Offer bonuses for new customer acquisition or market expansion.
• Consider long-term incentives like stock options for senior sales roles.

Regularly assess the balance between base pay and incentives to ensure sustainability.

Incentive Plans: Boosting Morale and Performance

In addition to traditional compensation models, incentive plans can drive motivation. Examples include:

• Quarterly or annual performance bonuses
• Profit-sharing linked to company-wide success
• Individual or team-based sales contests with tangible rewards

Choosing the Right Compensation Model

Picking the right compensation plan isn’t always easy. You need to consider your industry, your sales process, and your business goals. Whether it’s a straight salary, commission-only, or a hybrid model, the key is to regularly review your plan and make changes as needed.