This glossary draws on our 15-year experience working with customers to calculate over $2 billion in commission, as well as outside resources we have relied on along the way. We have tried to give credit to those sources where appropriate. If you think we're wrong on a definition, or if we have missed giving credit to the originator of a definition, please contact us and we will correct the record. Enjoy this glossary - we hope you find it helpful.
Glossary of Sales Commission Terms
With over 15 years of helping companies solve their sales commission challenges like Team vs. Individual compensation plans, we've learned a thing or two about sales comp. One thing we've learned - don't trust any glossary that claims to be the "most definitive" or "most accurate" - no two sales comp professionals will agree on all of the terms. So we'll settle for the most comprehensive. Below you'll find a comprehensive list of the common and uncommon terms from the world of incentive compensation.
A higher commission rate that increases a rep's payout relative to what she would have earned on her base commission rate. Accelerators are used to reward superior performance. They typically kick in once a sales rep has achieved quota.
- Example: Jennifer will make $10,000 if she achieves her quota of $100,000, so her base commission rate is 10%. Once Jennifer achieves quota, her commission rate jumps up to 12% to serve as extra motivation to continuing her great performance.
- Also known as: kicker, ramped rate
A measure of a sales rep's performance against her quota. Achievement is expressed as a percentage and is calculated by dividing actual sales performance by quota.
- Example: Sarah sells $60,000 against a quota of $80,000. Therefore her achievement is 75%.
- Also known as: attainment
Any user that engages with a business over a specific period of time, becomes an “active” user.
A sales agent is a self-employed, salesperson who is hired by one or more companies to sell their products or services, and facilitates the signing of sales contracts between the company and its customers.
Analytics or sales analytics involves analysis technologies and processes that collect, measure, manage and analyze sales data. It helps the sales team to make informed decisions about prospects and customers, product lines, market opportunities, and sales team performance.
An annual bonus is a sum of money paid yearly to employees, on top of their annual salary. It may or may not be related to the performance of an employee. For example, some companies offer a percentage of the total salary as a bonus (which varies with the employee's performance), while others award a flat bonus each year.
Annual wage adjustment
Yearly increase or decrease in wages according to a specific plan formula is known as annual wage adjustment.
ASC 606 Standard
An accounting standard, also known as the revenue recognition standard. This standard establishes that revenue should be recognized when the contact between a customer and company is met -- that is, when a company satisfies its performance obligation by transferring a promised good or service to a customer.
Compensation that is paid based on performance. It is not guaranteed compensation like you would expect from a salary. Most sales compensation plans have an "at-risk" component that is based on performance. This at-risk component is paid on top of the base salary.
- Also known as: incentive compensation, variable compensation, pay-for-performance.
A measure of a sales rep's performance against his quota. Attainment is expressed as a percentage and is calculated by dividing actual sales performance by quota.
- Example: Rico sells $60,000 against a quota of $80,000. Therefore his attainment is 75%.
- Also known as: achievement
Base Pay/Base Salary
Base pay, or base salary, is the minimum wage a person gets according to their job posting and qualifications. The amount is fixed by the guidelines provided by the Human Resources department and is exclusive of other forms of compensation, benefits, or bonuses.
Best practices are proven methods or techniques that produce results superior to those achieved by other means and are often referred to as the standard. Salespeople and sales managers follow these practices to accomplish their targets and objectives in the best way possible.
Sales bonuses typically refer to an incentive payment that is triggered by a yes/no decision (i.e. did the sales rep meet a threshold? If yes, then pay bonus). This is different than a commission, which is earned incrementally as higher performance is achieved (i.e. a rep may make a commission on each deal). It's important to note that not all sales comp professionals use these terms the same. Some sales comp pros use "bonus" interchangeably with "commission".
Cap is the upper limit or restriction placed around the spending of cash. In sales, it is the maximum cash compensation an employee can earn in a given time period.
A sales channel acts as a medium for distributing or selling products or services to the market. A company could distribute or sell its products or services; through direct (website, salesforce, etc.) or indirect routes (brokers/agents, partners, etc.).
Clawbacks refer to when a business reverses or recovers an incentive that has previously been paid. Clawbacks usually occur when a customer returns a product or cancels a contract that a sales rep has been paid on. However, they can also occur simply because there were errors in the original calculation (e.g. the sales amount was entered incorrectly).
Coaching or sales coaching plays a central role in performance management. It is the process of improving the performance of a team or an individual by motivating, training, and guiding sellers to achieve their objectives. The ultimate goal is to enhance the KPIs (key performance indicators) like revenue growth, customer satisfaction, etc.
Commission per Sale
The simplest of all sales comp structures. This type of plan pays a simple percentage of each sale, so a sales rep is sharing in a portion of the revenue he generates for the company. Unlike On-Target Commission plans, there is no quota associated with these type of plans. These are also known as unit rate plans or flat commission plans.
- Example: Residential Real Estate agents who receive 3% of each home sale are on commission per sale plans.
A sales commission rate connects the salesperson’s performance to their monetary compensation. It is usually fixed and is represented in the form of a percentage.
For example, if you set a sales commission rate of 20% and a salesperson sells $10,000 worth of products in a month, then you have to pay him/her a commission of $2000.
Commission Tracking Software
Commission Tracking Software (aka Incentive Compensation Management Software) is designed to automate the process of calculating sales compensation as well as tracking salespeople’s commissions and performance.
Commissions are a form of compensation. They are "variable" incentives paid to individuals because they are based on performance. Commissions are typically a percentage of sale volume, revenue, gross margin, or other variables. Commissions are paid in addition to other forms of compensation such as salary.
Commission expense is an accounting term describing an entry to record its liability for the compensation payable to a salesperson.
Compensation administration is a component of human resource management that deals with claims monitoring and administration, report generation, revenue recognition, and communication with employees, managers, insurance carriers, medical staff, and lawyers.
It refers to planning, organizing, and controlling the direct and indirect payments employees receive for the work they perform.
Three basic compensation plans are available to sales management: salary, commission, and combination (salary plus incentive) plans.
Compensation Management Software
Compensation Management Software is a tool used to view and adjust compensation policies, plan bonuses and commission components, and recommend pay adjustments.
The compensation strategy is a high-level approach to align a business’ rewards, benefits, pay, and other forms of remuneration with its objectives.
Configure, Price, Quote (CPQ)
CPQ systems enable sales representatives to accurately generate product or service options, prices, and quotes. Such systems are characterized by quick and accurate responses to prospects’ requests by reducing quote errors and rework.
Customer Relationship Management is a software developed to help a company’s interactions with customers, clients, and sales prospects throughout the sales funnel.
The opposite of an accelerator. A decelerator is a reduced commission rate that decreases a rep's payout relative to what she would have earned with her base commission rate. Decelerators can be used to penalize poor performance (before a rep hits quota) or avoid excessive payouts (after a rep hits quota). Decelerators can demotivate a sales rep and should be used carefully.
- Example (penalizing poor performance): Jennifer will make $10,000 if she achieves her quota of $100,000, so her base commission rate is 10%. However, to penalize below-average sales performance, her commission rate on all sales up to $100,000 is only 8%.
- Example (avoiding excessive payouts): Once Jennifer achieves quota, her commission rate jumps up to 12%. This is an accelerator to reward superior performance. However, sales management has a strict budget around sales comp and wants to avoid large payouts. So once Jennifer exceeds 130% of quota, her commission rate falls back to 8%.
The credit is linked to a sales rep or payee based on any activity, ranging from sales to meetings scheduled.
Dispute resolution refers to several processes that can be used to resolve or settle disputes related to commission cuts, commission splits, ambiguous language in the contract or commission paperwork, etc. There are three commonly used methods of resolving disputes without going to court: negotiation, mediation, and arbitration.
Money which a sales rep can borrow from the business against future commissions. Draws can be "recoverable" (the rep will need to pay the company back from future commissions) or "non-recoverable" (no need to pay it back). Draws are typically used for new reps to bridge the gap between starting the job and when they start receiving commissions from making sales.
Any part of the incentives and compensation programs for the senior leadership of a business. These include long-term or annual incentives, deferred compensation, benchmarks against the competitor, even retention plans.
(We like this definition from our friends at Canidium): A qualifying component of an incentive compensation or commissions plan that once met, allows for a payout of another component. For example, achieving a certain percentage of a quota can be a gate for a sales bonus paid when a sales person sells x or more units of a product.
An amount which is guaranteed as a minimum to be paid to a payee or sales rep, which a business may or may not choose to deduct from future commission payments.
Ranking within an organization based on skill level, seniority, and commission paid; is known as Hierarchy (occasionally Multiple Hierarchies). Multiple Hierarchies may exist within a single organization and could result in payment through several levels of the reporting chain.
For example, within a sales organization, sales team leaders may report to a branch manager, who may then report to the regional sales manager, etc.
Sometimes a person who is higher in the hierarchy receives a percentage commission from the revenue generated by someone lower in the hierarchy (known as a rollup).
In software systems, company hierarchies gatekeep certain employees from accessing the system and data reports for security reasons.
Hierarchies may also represent relationships between two or more entities like product categories and subcategories, customers (U.S./Southeast Region/customers), etc.
Incentive Compensation Management (ICM)
Incentive Compensation Management abbreviated as ICM refers to software that helps Sales Compensation Administrators automate tasks, such as running calculations, generating reports with the added benefit of eliminating errors associated with using spreadsheets.
Sales incentives are the rewards and benefits offered to salespeople for achieving certain goals, usually selling products or services, with the intent to motivate more sales.
Individual incentive plans are based on achieving performance standards, typically implemented when employees have control over outcomes, are measured objectively and create healthy competition.
A type of sales commission plan where payees are remunerated based on sales which they may not have closed themselves.
Kicker (aka accelerator)
A higher commission rate that increases a rep's payout relative to what she would have earned on her base commission rate. Kickers are used to reward superior performance. They typically are triggered once a sales rep has achieved quota.
- Example: Jennifer will make $10,000 if she achieves her quota of $100,000, so her base commission rate is 10%. Once Jennifer achieves quota, her commission rate jumps up to 12% to serve as extra motivation to continue her great performance.
Key Performance Indicators (KPI)
Key Performance Indicators are high-level, quantifiable measures used to help a business organization monitor its success in moving toward its broader goals, such as organizational initiatives. KPIs vary with the company’s objective.
For example, KPIs for growth may be revenue and market share, whereas KPIs for increased profitability may include net margin and cost of sale.
Line of Business (LOB)
Line of Business refers to segments within a business that can be separated by the products and services sold, customer size, customer demands, the distribution channel, and brand.
Long Term Incentive
Any incentive in which the number of years of performance decides the amount.
Management by Objectives (MBO)
Management by Objectives is a system for the manager(s) and team members to identify common performance goals based collaboratively.
Anything on-demand refers to software as a service where little to no installation is required, and value is obtained instantly via the web.
Traditional types of software applications or programs that require installation onto a device or hardware within a business’ physical location.
On-Target Commissions (OTC)
On-Target Commissions (also known as OTE On-Target Earnings) refers to the amount paid to a payee if all their targets have been achieved.
On-Target Earning (OTE)
On-Target Earnings (or just Target Earnings) refers to the amount paid to a payee if all their targets have been achieved. A salesperson’s compensation earnings are constituted of base salary and the additional variable components in a compensation plan like bonuses and commission.
Sales commission override is a form of indirect payment, similar to a roll-up, in which an employee receives a percentage compensation for a sale, made by another employee.
For example, a product manager might indirectly receive a 2.5% override on their products sold by sales representatives, even though the representatives do not work for them.
A pain point is a specific problem (as with a product or service) that inconveniences prospects while they’re in the sales funnel.
For example, customers could have a problem with online research, website navigation, product cost and availability, checkout, multi-channel shopping, tracking, delivery, etc.
Pay mix is the percentage of a salesperson’s total compensation comprised of salary and on-target commission. It is the ratio of base salary to target incentives.
For example, a 70/30 pay mix means that 70% of the total on-target earning is fixed base salary, and 30% of the total on-target earning is variable commission.
Payees or Participants are individuals, or individual entities whose remuneration is variable based on their performance configured using the Incentive Compensation Management system.
Sales incentive plans are made up of several components, such as commission rates, territories, quotas, gates, periods, etc. to calculate how much payees are remunerated.
Plan communication and acceptance
A communication plan is a roadmap designed to provide stakeholders with a clear, specific message that holds information about a newly launched product or service. It defines who should be given specific information, when that information should be delivered, and what communication channels will be used to deliver the information.
An agreement between a client and a manager that specifies the tasks and criteria to be met to get the final approval from the client after the project is called an acceptance plan.
Plan design and modeling
The process of designing a plan, comprising components that add up to a sales representative's base salary, commissions, bonuses, etc., by aligning them with the business’ goals and financial objectives, is referred to as compensation plan design.
Plan Design Modeling experiments with a variety of plan design alternatives, and determines how various levels of sales outcomes will affect the total commission budget and how that would impact plan members.
A person's place in an organizational structure or hierarchy is known as his/her position. It defines the scope of their responsibilities within an organization.
Examples of some positions include regional sales manager, sales manager, inside sales representative, outside sales representative, sales assistant, sales engineer, etc.
Additional payment or a sum of money added to an employees’ usual pay rate (e.g., overtime, double-time for holidays, etc.). In insurance terms, this could also refer to the amount to be paid for a contract of insurance (e.g., a life insurance premium).
A calculation performed to finalize payment amounts for the current pay period.
When adjustments are made to the payment portion of an incentive based on eligibility rules such as length of service or probationary periods.
A sales qualified lead is a prospective customer that has been researched and vetted according to an organization's lead qualification criteria — first by an organization's marketing department and then by its sales team — and is deemed ready for the next stage in the sales process i.e. they're ready to be pursued by the sales team for conversion into a full-fledged customer.
Quota, also known as goal, objective, performance target, or target, is the amount that a salesperson must sell for a particular period (month, quarter, year) to earn a commission. It can be expressed as absolute numbers, percentages, or the number of goods or services sold or recovered from future payments.
Common in the SaaS (Software as a Service) business subscription model, recurring revenue in sales refers to payments made in set intervals e.g., ARR (Annual Recurring Revenue), QRR (Quarterly Recurring Revenue), MRR (Monthly Recurring Revenue).
According to Canidium, retroactive is an input or decision made today that needs to be effective as of a date that has already passed. Back payments or other adjustments to prior payments may be due as a result.
Rollup refers to a sales commission that is rolled from one payee to another, based on the organizational reporting relationship between the two. For example, if a sales representative earns credit for a sale, and they report to a manager who also gets credit off of the same sale, then this would be known as a rollup.
Sales (Incentive) Compensation
Sales (Incentive) Compensation is the amount paid to sales personnel (e.g. sales reps, sales management, and sales support) in exchange for selling a certain number of products or services. It is not guaranteed or fixed like a base salary. Instead, it is paid on top of that.
Most sales compensation plans have an "at-risk" component that is based on performance. Also known as incentive compensation, variable compensation, at-risk pay, pay-for-performance.
Sales commission is a type of variable compensation that is rewarded to salespeople for achieving sales outcomes.
Sales Commission Metrics
Sales commission metrics are defined as the Key Performance Indicators (KPIs) of an organization to gauge a salesperson’s performance toward goals and objectives.
Sales Commission Plans
Sales commission plans harbor all elements of a sales commission: rules, eligibility criteria, base salary, and variable commission pay.
- The amount paid to sales personnel (e.g. sales reps, sales management, and sales support) in exchange for sales outcomes.
- Refers to the specialized set of activities that make up the domain of incentive compensation for sales personnel and includes designing plans, administering comp, and reporting to management.
Sales Compensation Plans
Sales compensation plans include the details and components of a salesperson’s earnings for performance, typically composed of base salary, commission and other benefits, incentives or bonuses.
Sales Force Automation (SFA)
Sales Force Automation refers to the automating tasks related to sales and sales operations.
Sales goals are set objectives for a salesperson or a sales team.
Typical sales goal examples include increasing revenue, boosting customer retention by a certain percentage, optimizing sales processes, increasing the number of customers, enhancing sales representatives' productivity, and minimizing time wastage.
The sales organization is the selling unit of the company. It looks over the sales requirements and designs the company accordingly. The primary function of the sales organization is the selling and distribution of goods and services.
Other functions include recruiting and training of employees, equipping the sales face, conducting market research, deciding the brand and trademarks for the products, foreseeing trends in sales, managing sales budgeting, and developing policies related to channels of distribution, terms, and conditions of sale, prices of the products, the rate of trade and cash discounts, conditions regarding the return of goods, the period of credit, the mode of payments, etc.
Sales Performance Incentive Fund (SPIF)
A SPIF, or Sales Performance Incentive Fund, is an extra incentive to payees deigned to drive specific behaviors, usually for a limited time. You often see this with competitions where a sales manager might use a SPIF to provide an extra incentive for reps to sell hard through the end of a quarter. Note: as with many terms in the world of sales commissions, the exact words that make up this acronym are hotly contested. You will also see this as "Special Product Incentive Fund" or "Special Performance Incentive Fund". And sometimes it's spelled "SPIFF", but we're not sure what the final "F" stands for.
- Example: With 4 days left in the month, Catherine wanted a big finish. So she announced a $500 SPIF for each sale through the end of the month.
Sales Performance Management (SPM)
Sales Performance Management deals with those capabilities that are necessary for keeping the sales organization's performance up and running. It supports the planning, management, analysis, and improvement of sales organization performance. SPM aligns sales focus with both sales strategy and corporate goals.
Key SPM components include:
- Plan design and modeling
- Quota and territory management
- Plan communication and acceptance
- Compensation administration and reporting
- Incentive Compensation Management
- Dispute resolution
Quotas are sales targets that salespeople must exceed in a set period to be eligible for their variable pay.
Sales representatives work directly for the company and act as the bridge between a company and its customers. They usually have phenomenal communication skills, public speaking skills, and negotiation skills, which help them understand what the consumer wants, establish trust with the consumer, and demonstrate command on the subject matter. They have to ensure that all clients have the customers and services they ordered and pitch prospective customers.
Sales Targets are goals for sales departs, teams, and people. Targets are used synonymously with Quotas. Typically you see "Target" used in APAC and EMEA and "Quotas" used in the US. Targets and quotas are typically defined for a specific time window (aka period).
A sales team is a section of staff who work to sell a company’s products, subscriptions, and services to clients. It not only generates revenue but also has a strong impact on brand image, customer retention, establishing long-term customer relationships, etc.
Service Level Agreement (SLA)
Service Level Agreement from software vendors are guarantees made, for example, an SLA to have an SPM with high availability; an uptime of 99.99%
Split refers to the number of incentive payments and costs that are split between two or more employees.
Split Sales Commission Agreement
Split sales commission agreements divide the commission made on a sale into shares to award all salespeople for their contributions. Split sales commissions can be distributed equally among contributors, or tailored for each payee.
Target Incentive Compensation
Target incentive compensation is the total amount of variable compensation a sales rep earns if she achieves her target performance (i.e. she hits quota). It does not include base salary. Adding target incentive compensation to base salary gives you on-target earnings.
- Also know as: On-target commission
It is the duration of time of the contract. A term, when terminated early is penalized with a fee or fine.
Segments of prospects and accounts that are assigned to certain salespeople or teams for the selling of products or services are known as territories. Every team is responsible for their own territory and is commissioned accordingly.
The lowest performance level that a sales representative must achieve to earn an incentive payment is known as the threshold.
A tired commission refers to the milestones built into an offer. Here’s how it works: a base commission with its type and duration is set, and then on top of it, various incrementally higher commissions are arranged to motivate salespeople to sell more and earn more.
For example, for sales of up to $30,000, the salesperson receives a 2% commission. For sales between $30,001 and $60,000, the salesperson receives 2.5% commission.
A business’ Top Performers are the sales reps that achieve higher win rates than others and help provide insight in improving the sales development processes.
Total rewards, also known as total compensation, cover all aspects of a payee's income including long-term incentives, recognition and reward programs, benefits, training, etc.
Variable Pay also referred to as “pay-for-performance” or “at-risk” pay, is the amount of sales compensation determined by the payee’s level of attainment or performance. When a payee performs a little more than usual, his/her pay increases, and when a payee underperforms, his/her total income takes a hit and decreases.
In the words of Canidium, workflows are automated business processes. Within SPM/ICM, workflows can include processes such as new sales rep onboarding, sales plan acceptance, dispute resolution, etc. Workflows can be simple or complex, depending on the business need.