Commission

Performance-based pay calculated as a percentage of sales revenue or deals closed, common in sales roles.

Commission is a form of variable compensation paid to employees — most often in sales roles — based on the value or volume of deals they close. It's calculated as a percentage of revenue generated, and is typically paid on top of a base salary. In some roles, commission is the primary or sole form of compensation.

Commission structures create direct alignment between individual performance and pay, which can be motivating for high performers but creates income volatility. Understanding the commission plan — including rates, accelerators, clawbacks, and timing — is critical before accepting a sales role.

Common Commission Structures

  • Straight commission — 100% of pay is commission-based; no base salary. High upside, high risk.
  • Base + commission — most common in B2B sales; provides income floor while rewarding performance.
  • Tiered commission — rate increases as you hit higher thresholds (e.g., 8% on the first $500K, 12% above that).
  • Accelerators — bonus commission rates that kick in after quota is achieved.
  • Draw against commission — an advance on expected commission, which must be repaid if targets aren't met.
  • Residual commission — ongoing payment for recurring revenue or retained clients.

Key Questions to Ask About Any Commission Plan

  • What is the commission rate, and does it tier or accelerate above quota?
  • What counts as a closed deal — signed contract, payment received, or something else?
  • When is commission paid — monthly, quarterly, or at deal close?
  • Are there clawback provisions if a customer cancels or doesn't pay?
  • How is quota set, and what percentage of the team typically hits it?
  • What happens to commission if the company changes the comp plan mid-year?

OTE and Commission Planning

On-Target Earnings (OTE) is the total expected compensation — base plus commission — if you hit 100% of quota. OTE is a planning number, not a guarantee. Before accepting a role, ask what percentage of the sales team actually achieves OTE. If only 30% of reps hit quota, your realistic expected earnings are meaningfully lower than the headline OTE.

Example

A software sales rep earns a $70,000 base salary with a 10% commission on all closed deals. After closing $800,000 in annual contract value, she earns $80,000 in commission — bringing total cash to $150,000, equal to her on-target earnings.