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May 13, 2026
Sales Comp Plan Design: Why Your Revenue Is Broken
The Comp Plan That's Killing Your Revenue
The sales team hit quota every quarter. Revenue grew 40%. The company lost money on every deal. Nothing was broken. Except the system.
The CEO couldn't understand it. The board was celebrating growth in bookings while the CFO was flagging a margin collapse. When they finally diagnosed the problem, the answer was painfully simple: the compensation plan rewarded revenue at any cost. So the sales team delivered revenue at any cost.
Discounting to close. Overcommitting on implementation. Selling annual contracts at prices that didn't cover customer acquisition costs. Every rep was behaving rationally within the system they were given. The system was just designed to produce the wrong outcome.
Your comp plan is your real strategy. Not the deck. Not the offsite. Not the CEO's priorities. The comp plan. Whatever you pay for, you get. Whether you want it or not.
In twenty years of placing and advising commercial leaders across the U.S. and Mexico, I've seen more revenue dysfunction traced to compensation design than to talent, strategy, or market conditions combined. The comp plan doesn't just incentivize behavior. It architects it.
The Three Misalignments
Most comp plans don't fail randomly. They fail predictably.
Each misalignment produces a specific behavioral distortion that's visible in the numbers if you know where to look.
Misalignment #1: Growth vs. Margin
The comp plan rewards bookings. Total contract value. New ARR. Top-line revenue growth. The metrics that make board presentations look impressive.
What it doesn't reward: deal profitability. Margin protection. Pricing discipline.
Discounting isn't a rep problem. It's a design feature.
Reps discount aggressively because discounting accelerates the close, and the commission is calculated on revenue, not margin. Deal sizes increase because reps bundle services that the delivery team can't profitably fulfill. Contract terms become favorable to the customer because the rep's incentive is to get the signature, not protect the economics.
The company scales. The business model breaks. You didn't lose pricing discipline. You paid people to abandon it.
By the time the finance team surfaces the margin problem, the sales team has spent two years training customers to expect discounts that have become the de facto pricing. Unwinding this takes longer than building it.
The diagnostic question: Does your comp plan distinguish between a $500K deal at 60% margin and a $500K deal at 20% margin? If both pay the same commission, you've told your sales team that margin doesn't matter. They're listening.
Misalignment #2: New vs. Existing
The comp plan pays full commission on new logos. Renewals pay a fraction, or nothing. Expansion revenue within existing accounts is customer success territory, not sales territory.
The behavior is predictable. The fastest way to get paid is to forget the customer.
Reps close new deals and immediately move on. Onboarding is someone else's problem. Renewal is someone else's problem. Meanwhile, churn quietly erases the new revenue. The company books $5M in new ARR and loses $3M in renewals and contractions. Net growth is $2M, but the comp plan paid commissions on $5M.
You didn't build a sales team. You built a churn machine.
The diagnostic question: What happens to a rep's commission if their customer churns within twelve months? If the answer is "nothing," churn isn't a surprise. It's the output.
Misalignment #3: Individual vs. Team
The comp plan rewards individual quota attainment. Stack rankings determine who earns accelerators. The President's Club is an individual achievement.
The system rewards isolation. Collaboration becomes irrational.
Leads get hoarded. Introductions don't get made. The enterprise rep who could help the mid-market rep navigate a complex org chart doesn't, because there's no incentive to do so and a disincentive to spend time on someone else's deal.
You asked for teamwork. You paid for competition.
The diagnostic question: When was the last time a rep voluntarily helped a colleague close a deal? If you can't remember, the comp plan says not to.
The F1 Parallel
F1 teams design for race distance. Winning Saturday doesn't win Sunday.
A setup that produces a spectacular qualifying lap often degrades tire life, overheats brakes, and costs positions over a full race distance. A comp plan built for speed breaks over distance. The teams that consistently win championships sacrifice a tenth of a second in qualifying to gain thirty seconds over a race. Sales organizations that design comp plans for long-term value creation follow the same logic.
Ferrari has lost championships this way. Companies lose markets the same way.
Designing for Conditions
The mistake isn't bad design. It's a borrowed design. They copy structure. They ignore conditions. Comp plans don't travel well.
The structure that works for a $200M SaaS company with 95% retention doesn't work for a $30M company with 80% retention. The conditions are different. The incentive architecture should be different, too.
Three questions anchor a conditions-based approach:
What behavior does the company need most right now? If the company needs new customers, focus on new logos. If it needs retention, weight toward renewals and expansion. If it needs margin improvement, tie commissions to deal profitability. The plan should reflect the current strategic priority rather than a generic industry template.
What behavior is the current plan accidentally rewarding? Ask: "If I were a rational rep trying to maximize my income under this plan, what would I do?" If the rational strategy produces behavior the company doesn't want, the plan is misaligned.
What's the time horizon of the revenue model? Companies with high customer lifetime value should compensate for the full lifecycle. Mismatching the comp plan's time horizon with the business model's produces every dysfunction described above.
The Conversation Most Companies Avoid
This is where companies hesitate. Because fixing the plan means redistributing money. And money reveals what you really value.
Most companies would rather change the leader than the incentive. It's easier. It's also wrong.
In advising CEOs and boards on commercial leadership, I've found that comp plan dysfunction is often the root cause of what appears to be a sales leadership problem. The company fires the VP of Sales because revenue is unprofitable. They hire a new VP who inherits the same comp plan and produces the same behavior. The leadership wasn't the variable. The incentive architecture was.
Addressing this requires the CEO to frame the conversation accurately. Not "we need to cut commissions" but "we need to align what we reward with what we actually need the team to do." That framing turns a compensation negotiation into a strategic conversation.
The Pattern - TLDR
Sales teams don't miss targets. They hit the ones you set. The behavior isn't the mystery. The incentive is the explanation.
When revenue grows, but margins collapse, the comp plan rewards revenue without margin. When new bookings surge but net retention declines, the comp plan rewards acquisition without retention. When individual reps outperform but the team underdelivers, the comp plan rewards individuals without collaboration.
Before redesigning the sales team, before replacing the VP of Sales, before concluding that the talent is wrong, look at the comp plan. It's the most honest document in the company. It tells the sales team what actually matters, regardless of what the strategy deck says.
Don't fix the team. Fix what you pay them to do.
Charlie Solórzano is a Managing Partner at Alder Koten, a boutique executive search firm specializing in C-suite and board placements across the U.S. and Mexico markets. He advises founders, investors, and boards on leadership transitions using The Race Conditions Model™, a proprietary diagnostic framework built on the thesis that leadership success is determined by conditions, not credentials.
Revenue Growing But Margins Aren't?
Comp plan dysfunction is frequently the root cause of what looks like a commercial leadership problem. Before replacing the VP of Sales, it's worth diagnosing whether the incentive architecture is the variable. If you're working through this, let's talk.
Schedule a Confidential ConsultationFrequently Asked Questions
Why does a sales comp plan that rewards revenue growth cause problems?
Because revenue and business health are not the same metric. A comp plan that rewards bookings without weighting for margin, retention, or deal profitability produces exactly what it's designed to produce — revenue — regardless of whether that revenue is profitable. Reps discount aggressively because discounting closes deals faster, and their commission is calculated on revenue, not margin. Discounting isn't a rep problem. It's a design feature. You paid people to abandon pricing discipline.
How does sales compensation drive customer churn?
When comp plans pay full commission on new logos and little or nothing on renewals, the fastest way for a rep to get paid is to close and move on. Onboarding, adoption, and renewal become someone else's problem. The company books new ARR while churn quietly erases it. If a rep's commission is unaffected when their customer churns within twelve months, churn isn't a surprise — it's the output of a system that never gave anyone an incentive to prevent it.
Why do individual comp plans hurt complex sales team performance?
Because they make collaboration irrational. When commission is calculated on individual quota attainment and stack rankings determine who earns accelerators, reps have no incentive to help colleagues and a disincentive to spend time on someone else's deal. In companies where closing requires cross-functional coordination, individual comp plans produce the opposite of what the sales process demands. You asked for teamwork. You paid for competition.
How do you diagnose a misaligned sales compensation plan?
Ask one question: if I were a rational rep trying to maximize my income under this plan, what would I do? Walk through the logic. If the rational income-maximizing strategy produces discounting, customer abandonment, lead hoarding, or margin indifference — the plan is misaligned. The behavior the company is complaining about is the behavior the comp plan is producing. The incentive is the explanation, not the mystery.
Should companies redesign their comp plan before or after changing sales leadership?
Before. Comp plan dysfunction is frequently the root cause of what looks like a sales leadership problem. A company that fires the VP of Sales because revenue is unprofitable and then hires a new VP into the same comp structure will produce the same behavior. The leadership was not the variable. The incentive architecture was. Most companies would rather change the leader than the incentive — it's easier, and it's wrong. Fix what you pay the team to do before you decide who should be leading them.
What does a conditions-based comp plan look like?
One designed for the company's actual stage and model, not borrowed from a company with different conditions. It starts with three questions: what behavior does the company need most right now? What is the current plan accidentally rewarding? And what is the time horizon of the revenue model? A company with high customer lifetime value should compensate for the full lifecycle. A transactional model can compensate for the transaction. Mismatching the comp plan's time horizon to the business model's produces every dysfunction in this article.
