<iframe src="https://www.googletagmanager.com/ns.html?id=GTM-PD6KG7L" height="0" width="0" style="display:none;visibility:hidden">

The World's Most Comprehensive Sales Commission Glossary

Sales compensation is fascinatingly complex as it is. No need for confusing terminology to make things more difficult. Understanding these terms will help you build effective comp plans and get the most out of your sales commission software.

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 they 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 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 most comprehensive. Below you'll find a comprehensive list of the common and uncommon terms from the world of incentive compensation. 

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.

Achievement

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

Accelerator

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

At-risk pay

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.

Attainment

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

Bonus

Sales bonuses related to sales compensation plans refer to results calculated based on several factors, ranging from individual or team performance.

Clawback

Clawbacks refer to when business reverses an incentive which has previously paid, usually due when a customer returns a product or the contract gets canceled.

Coaching

Coaching, or in some circles, performance management, is the use of different applications and systems to help improve a team or individual’s performance.

Commission Tracking Software

Commission Tracking Software is designed to automate the process of calculating sales compensation as well as tracking salespeople’s commission and performance.

Commissions

Sales commissions are incentives typically paid immediately and calculated based on a set or variable percentage of sales, revenue, gross margin, or other variables. Paid in addition to other payments such as salary.

Commission per Sale

The simplest of all sales comp plans. This type of plan pays a simple percentage of all sales, so a sales rep is sharing in a portion of the revenue he generates for the company. Unlike On-Target Commission plans, there is usually no quota associated with these type of plans. Also known as unit rate plans or straight commission plans. Example: Real Estate brokers who receive 3% of their total sales volume are on commission per sale plans.

Commissions Expense

Commission expense is an accounting term describing an entry to record its liability for the compensation payable to a salesperson.

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.

Compensation Strategy

The compensation strategy is a high-level approach to align a business’ rewards, benefits, pay, and other forms of remuneration with its objectives.

CRM

Customer Relationship Management is software designed to help businesses manage the customer’s experience throughout their journey. Salesforce Sales Cloud, SAP, Oracle, and Microsoft Dynamics 365 are some of today’s leading CRM vendors.

Decelerator

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%.

Direct Credit

The credit is linked to a sales rep or payee based on any activity, ranging from sales to meetings scheduled.

Draw

Money which payee or sales rep can borrow from the business against their potential earned income; sales commissions.

Executive Compensation

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.

Gate

A component that qualifies whether or not a payee is eligible for the incentive. Typically measured as a percentage achievement of a target.

Guarantee

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.

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.

Incentive Management

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

Individual incentive plans are based on achieving performance standards, typically implemented when employees have control over outcomes, are measured objectively and create healthy competition.

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. 

Indirect Plan

A type of sales commission plan where payees are remunerated based on sales which they may not have closed themselves.

Key Performance Indicators (KPI)

Key Performance Indicators are quantifiable measurements used by businesses to measure the success of attaining high-level goals, such as organizational initiatives.

Line of Business (LOB)

Line of Business refers to segments with a business which can be separated by the products and services sold.

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.

On Demand

Anything on-demand refers to software as a service where little to no installation is required, and value is obtained instantly via the web.

On-Premise

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.

Override

Sales commission overrides refers to any additional changes to a payee’s compensation, typically based on another sale rep’s sale; this form of indirect payments are similar to sales rollups.

Payee

Payees or Participants are individuals, or individual entities whose remuneration is variable based on their performance configured using the Incentive Compensation Management system.

Plan

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 Design

Sales compensation plan design is a process of selecting what components will factor a sales rep’s variable pay and base salary. Ideally, they will be aligned with the business’ goals and financial objectives.

Prorate

When adjustments are made to the payment portion of an incentive based on eligibility rules such as length of service or probationary periods.

Sales Quota

Quotas are sales targets that salespeople must exceed in a set period to be eligible for their variable pay.

Recurring Revenue

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).

Rollup

A level-based reporting structure in larger businesses where several payee’s sales performance is linked to their sales manager, with several managers’ aggregated performance relating to a VP of Sales’ commission.

Sales Compensation

Sales (Incentive) Compensation is the monetary amount paid to payees or salespeople and managers when they have accomplished their quotas or overall business goals.

Sales Commission

Sales commission is a type of variable-pay remuneration rewarded to salespeople for outcomes, typically achieving sales.

Sales Commission Plans

Sales commission plans are a piece of your overall sales compensation plans that include pay mix, composed of base salary and variable commission pay.

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 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 Compensation Draw

A draw in sales compensation is a payment in advance against expected earnings or commissions from a sale. Draws are designed to give salespeople control over their earnings within a period of time and adds direct incentive for future performance.

Sales Target

Sales Targets are goals for sales departs, teams, and people. Targets are measured using the number of items sold or revenue, over a set period.

Sales Force Automation (SFA)

Sales Force Automation refers to the automating tasks related to sales and sales operations.

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%

SPIF

Sales Performance Incentive Fund is an extra incentive to payees deigned to drive set behaviors at specific periods. Typically in the form competitions to sell the most of one product or service.

Split

Incentive payments and costs which are split between two or more payees.

Sales Performance Management

Sales Performance Management is the practice of monitoring and guiding your sales reps to improve their performance and encourage sales. SPM refers to software designed to help businesses plan, manage, analyze, and improve their salespeople’s performance.

Split Sales Commission Agreement

Split sales commission agreements divide commission into parts to reward salespeople for their contributions. Split sales commissions can be distributed equally, or tailored for each individual.

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

Term

A duration, period of time in a contract often with penalties or fees if the agreement is terminated prematurely.

Territory

How a business chooses to segment their Leads and Accounts to arrange which salespeople or teams are responsible for selling products/services.

Threshold

The lowest level of performance a payee may achieve to be eligible for their sales incentive payment; different to quotas and sales targets.

Top Performers

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

Total Rewards or Total Compensation is all aspects of an employee’s pay, including long-term incentives, recognition and reward programs, benefits, training, etc.

Variable Pay

Variable Pay is the amount of sales compensation determined by the payee’s level of attainment or performance.

Workflow

Workflows are automated business processes. SPM & ICM workflows generally include Gathering Data, Cleaning Data, Calculating Commissions, Communicating Reports, and Analyzing Results.

Performio Demo

Our demos like our commission software are customized for you and your business.

Request a Demo

Learn More About Sales Compensation

Like you, we are still coming to grips with what the new reality looks like. But it is clear this pandemic is going to.

Read Post »

You've probably all heard the saying, "People don't quit jobs, they quit bosses." But new research contradicts that.

Read Post »

Companies that rely on salespeople have long had to balance the need for motivational and fair compensation with the.

Read Post »