49 terms
Sales compensation glossary
The vocabulary of commission plans, in plain English.
A
- Accelerator
- A higher commission rate that applies to results above a set point, usually 100% of quota, to reward overperformance. Go deeper →
- Annual contract value (ACV)
- The average yearly value of a customer contract, often used as the commission base for multi-year subscription deals. Go deeper →
- ASC 340-40
- The US GAAP subtopic, issued alongside ASC 606, that requires incremental costs of obtaining a customer contract, such as sales commissions, to be capitalized and amortized when the company expects to recover them. Go deeper →
- Attainment
- Actual results divided by quota, expressed as a percentage. A rep with $450,000 of bookings against a $600,000 quota is at 75% attainment. Go deeper →
B
- Base salary
- The fixed part of a salesperson's pay, paid regardless of results. Go deeper →
- Bookings
- The value of contracts signed in a period, before revenue is recognized or cash collected. Many sales plans pay commission on bookings. Go deeper →
C
- Capitalized commission
- A commission recorded as an asset on the balance sheet and expensed over time, rather than expensed when paid, under ASC 340-40. Go deeper →
- Clawback
- A plan rule that recovers commission already paid when the underlying deal is cancelled, refunded or not paid by the customer. Go deeper →
- Commensurate renewal commission
- A renewal commission reasonably proportional to the commission on the initial contract. Under ASC 340-40, whether renewals are commensurate affects how long the initial commission is amortized. Go deeper →
- Commission
- Variable pay calculated from a salesperson's results, usually a percentage of revenue, bookings or margin, or a fixed amount per unit or deal. Go deeper →
- Commission budget
- The expected total variable payout for a team in a period, based on the likely spread of attainment rather than headcount times target. Go deeper →
- Commission cap
- A ceiling on how much commission a rep can earn in a period or on a single deal; results above the cap earn nothing extra. Go deeper →
- Commission rate
- The percentage of the commission base that is paid as commission. The target rate equals variable pay at target divided by quota. Go deeper →
- Commission split
- Sharing the commission on one deal between two or more people, according to percentages defined in the plan. Go deeper →
- Commission statement
- The document that shows a rep, line by line, which deals were credited, how each payout was calculated and what adjustments apply. Go deeper →
- Compensation plan
- The written document that sets a role's base pay, variable pay, quota, rates, payment timing and policies such as clawbacks and draws. Go deeper →
- Cost of sales
- In compensation design, the total cost of the sales organization's pay expressed as a share of the revenue it produces. Go deeper →
- Crediting
- Deciding which people receive credit, and how much, for a transaction before commissions are calculated. Go deeper →
D
- Deceleration
- A lower commission rate below a set attainment level, so underperformance pays proportionally less than performance at plan. Go deeper →
- Draw against commission
- A regular payment advanced to a salesperson and credited against commission earned later. Go deeper →
G
- Gross margin commission
- Commission calculated on the profit of a deal rather than its revenue, so discounts reduce the rep's payout. Go deeper →
I
- Incentive compensation management (ICM)
- The process and software that store variable-pay plans, credit transactions, calculate commissions and bonuses, send them to payroll and report them. Go deeper →
- Incremental cost of obtaining a contract
- Under ASC 340-40, a cost that would not have been incurred if the contract had not been obtained, such as a commission on a signed deal. Go deeper →
K
- Kicker
- An extra payment or rate added for a specific deal feature, such as a multi-year term, upfront payment or a strategic product. Go deeper →
M
- Manager override
- Commission paid to a sales manager on the results of the team they lead, in addition to any individual pay. Go deeper →
- Marginal tiers
- A tiered plan where each rate applies only to the results inside its own band, like income tax brackets. Go deeper →
- MBO (management by objectives)
- Variable pay tied to qualitative or non-revenue goals agreed in advance, such as a project milestone or a certification. Go deeper →
N
- Non-recoverable draw
- A draw that works as a guaranteed minimum: if commission falls short, the company absorbs the difference and it is never repaid. Go deeper →
O
- On-target earnings (OTE)
- Total cash compensation a salesperson earns at exactly 100% of quota: base salary plus target variable pay. Go deeper →
- Over-assignment
- Assigning more total quota to the sales team than the company revenue target, as a buffer against reps who fall short. Go deeper →
P
- Pay curve
- The relationship between attainment and payout across the whole range, including thresholds, decelerators, accelerators and caps. Go deeper →
- Pay mix
- The split between base salary and variable pay at target, written base/variable, for example 50/50 or 70/30. Go deeper →
- Pipeline coverage
- Open pipeline divided by the quota still to close in a period, used to judge whether there is enough pipeline to hit the number. Go deeper →
- Practical expedient (one-year)
- The ASC 340-40 option to expense incremental contract costs as incurred when the amortization period of the asset would be one year or less. Go deeper →
- Protection period
- In a clawback policy, the window after a sale during which a cancellation triggers recovery of commission; after it ends, the commission is safe. Go deeper →
Q
- Quota
- The result a salesperson or team is expected to deliver in a period, used as the reference point for variable pay. Go deeper →
- Quota-to-OTE ratio
- Quota divided by on-target earnings, a quick way to compare how much revenue a role is expected to produce per dollar of target pay. Go deeper →
R
- Ramp
- The period during which a new hire carries a reduced quota that steps up until it reaches full quota. Go deeper →
- Recoverable draw
- A draw that works as an advance: any shortfall against commission becomes a deficit repaid from future commission. Go deeper →
- Retroactive tiers
- A tiered plan where reaching a higher tier applies the higher rate to all results in the period, not only to the results above the tier. Go deeper →
S
- Sales capacity
- The bookings a sales team can realistically produce in a period, given headcount, ramp time, productivity and attrition. Go deeper →
- Sales performance management (SPM)
- A software category that usually combines incentive compensation management with quota, territory and capacity planning and sales analytics. Go deeper →
- SDR commission
- Variable pay for sales development reps, usually based on qualified meetings, opportunities or pipeline created rather than closed revenue. Go deeper →
- SPIFF
- Sales performance incentive fund: a short-term bonus for selling a specific product, hitting an activity target or closing within a window, paid on top of the regular plan. Go deeper →
- Supplemental wages
- The IRS term for wage payments other than regular wages, which includes bonuses, commissions, awards and prizes, with their own withholding rules. Go deeper →
T
- Target commission rate
- Variable pay at target divided by quota: the rate at which a rep earns exactly their variable target at 100% attainment. Go deeper →
- Threshold
- The minimum attainment a rep must reach before any commission or bonus is paid. Go deeper →
- Tiered commission
- A plan where the commission rate changes as results cross set levels, applied either marginally or retroactively. Go deeper →
V
- Variable pay
- The part of compensation that depends on results: commissions, bonuses and SPIFFs. Go deeper →