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.
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
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
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
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".
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 is a key component of performance management. It refers to the use of feedback, training, motivation and systems to help improve the performance of a team or an individual.
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 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.
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.
The compensation strategy is a high-level approach to align a business’ rewards, benefits, pay, and other forms of remuneration with its objectives.
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.
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.
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.
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.
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.
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.
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 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.
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.
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.
When adjustments are made to the payment portion of an incentive based on eligibility rules such as length of service or probationary periods.
Quotas are sales targets that salespeople must exceed in a set period to be eligible for their variable pay.
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).
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 (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 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 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%
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.
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
A duration, period of time in a contract often with penalties or fees if the agreement is terminated prematurely.
How a business chooses to segment their Leads and Accounts to arrange which salespeople or teams are responsible for selling products/services.
The lowest level of performance a payee may achieve to be eligible for their sales incentive payment; different to quotas and sales targets.
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 or Total Compensation is all aspects of an employee’s pay, including long-term incentives, recognition and reward programs, benefits, training, etc.
Variable Pay is the amount of sales compensation determined by the payee’s level of attainment or performance.
Workflows are automated business processes. SPM & ICM workflows generally include Gathering Data, Cleaning Data, Calculating Commissions, Communicating Reports, and Analyzing Results.