How to Build a Sales Commission Plan That Actually Motivates

A well-designed commission plan should be invisible. Reps shouldn't need to think about it. They should close deals, trust that the maths works in their favour, and watch their earnings grow. The plan should fade into the background, quietly aligning their behaviour with what the business needs.

Most commission plans don't work this way. They're too complex to understand, too opaque to trust, or too misaligned to motivate. Reps game them, ignore them, or resent them. Sales leaders spend hours explaining edge cases. Finance dreads the monthly reconciliation. Everyone agrees the plan isn't quite right, but nobody has time to fix it.

This guide covers the fundamentals of commission plan design for UK sales teams. Not theory for its own sake, but practical principles backed by research — the kind you can apply to your next comp cycle.

What the Research Actually Says

Commission plan design has been studied extensively, and the findings often contradict conventional wisdom.

Researchers at Harvard Business School examined what happened when a company removed commission caps and quarterly quotas, switching to a simpler linear commission structure. Revenue increased by 9%. The removal of artificial ceilings meant top performers kept selling through the end of the period rather than sandbagging deals for the next quarter. The simpler structure reduced gaming behaviour and let reps focus on what they were good at: selling.

Another study, published in the Journal of Marketing Research, compared commission-based plans against bonus-based plans across multiple firms. The commission plans consistently outperformed on productivity. Why? Because the link between effort and reward was immediate and transparent. Reps could see exactly how each deal affected their earnings. Bonuses, paid quarterly or annually against aggregate targets, lacked that direct connection.

But the research also reveals something less comfortable: extrinsic rewards can crowd out intrinsic motivation. When a task becomes associated with a payment, people sometimes lose interest in the task itself. This doesn't mean commission is bad — salespeople expect and deserve to be paid for performance. It means commission works best when it amplifies motivation that already exists rather than trying to manufacture it from scratch.

The practical implication: hire people who genuinely want to sell, then design a plan that rewards them fairly for doing it. Don't expect a clever incentive structure to transform someone who isn't motivated into a top performer.

The Building Blocks of a Commission Plan

Every commission plan answers the same basic questions. How you answer them determines whether the plan drives behaviour or just creates administrative overhead.

What Gets Commissioned?

The most fundamental question. Revenue? Gross margin? Bookings? New business only, or renewals too?

The answer should follow from what you actually want reps to focus on. If you commission on revenue, reps will chase revenue — including low-margin deals, discounted contracts, and customers likely to churn. If you commission on gross margin, reps will protect pricing but might walk away from strategic deals that don't meet margin thresholds.

Research dating back to the 1970s established that optimal compensation should tie to gross margin rather than volume when salespeople have pricing discretion. If your reps can negotiate on price, commissioning on revenue alone creates an obvious misalignment: they're paid the same whether they sell at full price or at a 30% discount.

For most UK mid-market sales teams, a pragmatic approach is commissioning on recognised revenue — deals that have closed, invoiced, and (depending on your policy) been paid. This creates clean alignment between sales activity and company cash flow.

When Is a Deal Commissionable?

This sounds simple until you start listing the edge cases. Is a deal commissionable when it's marked closed in the CRM? When the contract is signed? When the invoice is raised? When payment is received?

Each choice has implications. Commission on CRM close date and you'll pay on deals that later fall through. Commission on payment received and you'll delay payouts by weeks or months, frustrating reps who've done their job but haven't been paid for it.

The most common approach for UK businesses is to commission on invoice date or contract signature, with clawback provisions for deals that don't ultimately pay. This balances timely reward against commercial prudence. Whatever you choose, document it clearly. Ambiguity here is a guaranteed source of disputes.

What Rate Applies?

A flat percentage is simplest: every pound of revenue earns the same commission. But flat rates don't necessarily drive the behaviour you want.

Tiered structures pay different rates at different performance levels. Hit £100k in sales, earn 5%. Hit £150k, earn 7% on everything above that threshold. The tiers create natural motivation to push beyond each level.

Accelerators increase rates as reps exceed quota. A rep at 100% of quota might earn 8%. At 120%, they might earn 12% on the incremental revenue. Accelerators reward your best performers disproportionately — which is usually what you want, since top performers often deliver disproportionate results.

Decelerators do the opposite: rates decrease above certain thresholds. These are less common and generally less effective. Research suggests that capping or reducing commissions above quota encourages sandbagging — reps hold deals back for the next period rather than closing them now.

How Do Splits Work?

When multiple people contribute to a deal, how is commission divided? This matters more than most plans acknowledge.

The overlay model gives full commission to the primary rep and a smaller percentage to supporting roles (solutions engineers, account managers who sourced the lead, etc.). Simple to administer but can create conflict over who "owns" the deal.

The split model divides a single commission pool between contributors. Fairer in principle, but requires clear rules about contribution percentages and often leads to disputes.

The multiplier model pays full commission to multiple parties — acknowledging that collaboration creates more value than it costs. Expensive but effective for businesses that want to encourage teamwork.

Whatever structure you choose, document it before the deal closes. Retroactive arguments about splits are toxic to team dynamics.

UK-Specific Considerations

Commission plan design in the UK differs from US approaches in several important ways.

Tax Treatment

Under HMRC rules, commission is treated as employment income and subject to PAYE. This means commission is taxed at the employee's marginal rate in the pay period it's received, not averaged across the year. A rep who receives a large commission payment in a single month may see a significant portion taxed at 40% or 45%, even if their annual earnings wouldn't normally reach those thresholds.

This creates a timing consideration. Spreading commission payments across multiple periods can reduce the tax impact for reps — though it also delays their access to money they've earned. Some companies offer reps the choice; others standardise on monthly payments for administrative simplicity.

National Insurance contributions also apply. For the 2024-25 tax year, employees pay 8% on earnings between £12,570 and £50,270, and 2% above that. Employers pay 13.8% on earnings above £9,100. These costs should factor into your total compensation modelling.

Employment Law

ACAS guidance is clear that commission arrangements should be documented in the employment contract or a separate written agreement. Verbal commitments or informal understandings create risk on both sides.

Key elements to document include: the basis for commission calculation, when commission becomes payable, circumstances under which commission can be withheld or clawed back, and what happens to accrued commission when employment ends.

The question of commission on termination is particularly important. If a rep resigns or is made redundant with deals in their pipeline, are they entitled to commission on those deals if they close after departure? UK courts have generally held that reps are entitled to commission on deals substantially completed during their employment, but the specifics depend heavily on contract language.

Team Size Realities

UK mid-market companies typically have smaller sales teams than their US counterparts. A 15-person sales team in the UK is substantial; in the US, it might be considered small.

This has design implications. Complex plans with multiple tiers, accelerators, and role-specific variations become harder to administer with a small team. The overhead of maintaining different structures for AEs, SDRs, and account managers may not be justified when you have three of each.

Simpler plans often work better at this scale. A straightforward percentage of revenue, perhaps with a single accelerator tier for exceeding quota, can be more effective than an elaborate structure that nobody fully understands.

Common Design Mistakes

Certain mistakes appear in commission plans repeatedly. Avoiding them puts you ahead of most.

Complexity That Obscures

If reps can't calculate their expected commission in their heads — at least approximately — the plan is too complex. Every additional variable, exception, and conditional reduces the plan's motivational power. Reps stop thinking about it because they can't think about it.

The test is simple: can a rep look at a deal they're about to close and know roughly what they'll earn? If the answer requires a spreadsheet, you've lost the motivational link between effort and reward.

Caps That Demotivate

Commission caps seem financially prudent — they limit exposure to unexpectedly large payouts. But research consistently shows they reduce performance. Top performers stop selling when they hit the cap. Deals get pushed to next quarter. The cap becomes a ceiling that nobody tries to exceed.

If you're worried about windfall payments from unusually large deals, consider adjusting the rate on mega-deals rather than capping overall earnings. A rep who closes a transformative enterprise deal should be rewarded for it, even if the commission feels large. They've just materially changed your company's trajectory.

Quotas That Aren't Credible

Quotas should stretch reps without breaking them. Set them too low and you're paying accelerator rates for mediocre performance. Set them too high and reps disengage — if the target feels impossible, why bother trying?

Research from Harvard Business School found that quarterly bonuses helped lower-performing reps stay on pace toward annual targets. The more frequent feedback loop kept goals feeling achievable. Consider how your quota structure and pacing interact with rep psychology.

The quota-setting process matters too. Quotas handed down without explanation or discussion feel arbitrary. Quotas built collaboratively from territory analysis and historical performance feel fair, even when they're demanding.

Changes Mid-Period

Changing a commission plan mid-year is almost always a mistake. Reps have made decisions — about pipeline, about effort allocation, about personal finances — based on the plan as it existed. Changing the rules retroactively, or even prospectively mid-period, destroys trust.

If a plan isn't working, diagnose why and fix it for the next period. Take the hit in the current period if necessary. The cost of mid-year changes isn't just the administrative complexity; it's the signal you send about how commitments work at your company.

Putting It Together

A good commission plan has a few key properties. It's simple enough to understand. It's transparent enough to trust. It aligns rep behaviour with business outcomes. And it rewards high performers in a way that feels fair and motivating.

Start with clarity about what you want to achieve. More new business? Better retention? Higher average deal sizes? Expansion within existing accounts? The plan should make achieving those goals the obvious path to earning more money.

Then strip away everything that doesn't serve that purpose. Every tier, exception, and conditional should justify its complexity. Most plans would be better with fewer variables, not more.

Document thoroughly. A commission plan that exists only in spreadsheets and tribal knowledge isn't really a plan — it's a set of precedents waiting to be disputed. Write it down. Review it with each rep. Update it annually.

Finally, administer it well. The best-designed plan fails if reps don't trust the calculations. Real-time visibility, clean audit trails, and fast dispute resolution aren't optional — they're what make the plan actually work.

Commission should feel like partnership, not adversarial negotiation. When the plan is right, reps win when the company wins. That alignment, more than any clever incentive structure, is what drives performance.