blackroad-os-sales-playbook/06-operations/COMPENSATION_PLAN.md

# 💰 Sales Compensation Plan

**PROPRIETARY & CONFIDENTIAL**

---

## Philosophy

**Great comp plans align incentives between company and reps.**

Good compensation:
- ✅ Rewards the right behaviors
- ✅ Motivates top performance
- ✅ Attracts A-player talent
- ✅ Scales with company growth

**Bad compensation:**
- ❌ Caps earnings (demotivates high performers)
- ❌ Rewards activity, not results
- ❌ Too complex (reps don't understand it)
- ❌ Misaligned with business goals

**BlackRoad OS Principle:** Pay for performance, not tenure.

---

## Compensation Structure Overview

### Model: Base + Variable (Commission/Bonus)

| Role | Base Salary | Variable (OTE) | Total OTE | Split |
|------|-------------|----------------|-----------|-------|
| **SDR/BDR** | $50K | $20K | $70K | 70/30 |
| **SMB AE** | $75K | $75K | $150K | 50/50 |
| **Mid-Market AE** | $90K | $110K | $200K | 45/55 |
| **Enterprise AE** | $120K | $130K | $250K | 48/52 |
| **Solutions Engineer (SE)** | $110K | $40K | $150K | 73/27 |
| **Sales Manager** | $130K | $70K | $200K | 65/35 |
| **VP Sales** | $180K | $120K | $300K | 60/40 |

**OTE = On-Target Earnings** (what you make if you hit 100% of quota)

---

## Quota Setting

### Formula

```
Individual Quota = (Company ARR Goal ÷ # of Quota-Carrying Reps) × Coverage Factor
```

**Example:**
- Company ARR Goal: $10M
- Quota-Carrying Reps: 10 AEs
- Base Quota per Rep: $1M
- Coverage Factor: 1.2 (expect 80-85% average attainment)
- **Adjusted Quota: $1.2M per rep**

**Why Coverage Factor?**
Not all reps hit 100%. Historically, average attainment is 80-85%. Coverage factor ensures company still hits revenue goal even if average attainment is <100%.

---

### Quota by Role

| Role | Annual Quota | Monthly Quota | What Counts |
|------|--------------|---------------|-------------|
| **SDR/BDR** | 240 SQLs | 20 SQLs | Qualified meetings scheduled (BANT++ >63) |
| **SMB AE** | $250K ACV | $21K ACV | New ARR + Expansion ARR |
| **Mid-Market AE** | $400K ACV | $33K ACV | New ARR + Expansion ARR |
| **Enterprise AE** | $750K ACV | $62.5K ACV | New ARR + Expansion ARR |

**Notes:**
- **New ARR:** First-year contract value from new customers
- **Expansion ARR:** Upsells and cross-sells from existing customers
- **Renewals:** NOT counted toward quota (but incentivized separately)

---

## Commission Structure

### Tiered Commission (Recommended)

**Why Tiers?** Accelerators reward overperformance and create urgency to close deals.

#### SMB/Mid-Market AE Commission Tiers

| Quota Attainment | Commission Rate | Example (on $400K quota) |
|------------------|-----------------|--------------------------|
| **0-60%** | 5% | $240K × 5% = $12K |
| **60-80%** | 8% | $80K × 8% = $6.4K |
| **80-100%** | 10% | $80K × 10% = $8K |
| **100-120%** | 15% | $80K × 15% = $12K |
| **120%+** | 20% (accelerator) | $80K × 20% = $16K |

**Total Commission at 140% Attainment:** $12K + $6.4K + $8K + $12K + $16K = **$54.4K**

**Total Comp:** $90K base + $54.4K commission = **$144.4K** (72% of OTE)

---

#### Enterprise AE Commission Tiers

| Quota Attainment | Commission Rate | Example (on $750K quota) |
|------------------|-----------------|--------------------------|
| **0-70%** | 5% | $525K × 5% = $26.25K |
| **70-90%** | 8% | $150K × 8% = $12K |
| **90-100%** | 12% | $75K × 12% = $9K |
| **100-120%** | 18% | $150K × 18% = $27K |
| **120%+** | 25% (accelerator) | Variable |

**Total Commission at 120% Attainment:** $26.25K + $12K + $9K + $27K = **$74.25K**

**Total Comp:** $120K base + $74.25K commission = **$194.25K**

---

### Flat Commission (Alternative)

**Simple Model:** 10% of all revenue, no tiers

**Pros:**
- ✅ Easy to understand
- ✅ Predictable
- ✅ No quota pressure

**Cons:**
- ❌ No accelerators (less urgency)
- ❌ Doesn't reward top performers as much

**BlackRoad OS Recommendation:** Use tiered commission (better for growth)

---

## New ARR vs. Expansion ARR

### Should They Be Weighted Differently?

**Option 1: Equal Weight (Recommended)**
- New ARR = 100% credit
- Expansion ARR = 100% credit

**Why:** Expansion is critical to NRR (Net Revenue Retention). Reward it equally.

**Option 2: Weighted**
- New ARR = 100% credit
- Expansion ARR = 50% credit

**Why:** New logos are harder to land. Reward them more.

**BlackRoad OS Recommendation:** **Equal weight** to encourage land-and-expand strategy.

---

## Renewal Incentives

**Problem:** If reps don't care about renewals, they'll land deals that churn.

**Solution:** Separate renewal incentive (not tied to quota)

### Renewal Commission

**Model:** Kicker for high retention

| Net Revenue Retention (NRR) | Bonus |
|------------------------------|-------|
| **<90% NRR** | $0 (red flag, investigate) |
| **90-100% NRR** | $5K/year |
| **100-110% NRR** | $10K/year |
| **110-120% NRR** | $15K/year |
| **120%+ NRR** | $20K/year |

**Paid annually, based on book of business.**

**Why:** Aligns long-term customer success with short-term sales incentives.

---

## SPIFs (Sales Performance Incentive Funds)

**What:** Short-term bonuses for specific behaviors

### Examples:

#### End-of-Quarter SPIF
**Goal:** Close deals before quarter end
**Incentive:** $5K bonus for any deal closed in last week of quarter

#### Product SPIF
**Goal:** Sell a new product (e.g., AI Platform tier)
**Incentive:** $2K bonus per AI Platform deal

#### Multi-Year SPIF
**Goal:** Increase cash flow with longer contracts
**Incentive:** 5% additional commission for 2-year contracts, 10% for 3-year

#### Case Study SPIF
**Goal:** Get referenceable customers
**Incentive:** $3K bonus if customer agrees to case study

**Best Practices:**
- ✅ Run SPIFs for 1-3 months max (urgency)
- ✅ Align with business priorities
- ✅ Communicate clearly (no confusion)
- ❌ Don't run too many at once (dilutes focus)

---

## Clawbacks

**Problem:** Rep closes deal, gets commission, customer churns in 60 days.

**Solution:** Clawback provision

### Clawback Policy

**Trigger:** Customer churns or requests refund within 90 days

**Action:** Rep must repay commission for that deal

**Example:**
- Rep closes $100K deal, earns $10K commission
- Customer churns after 2 months
- Rep repays $10K

**Exceptions:**
- If churn is due to product failure (not rep's fault), no clawback
- If customer was acquired by another company (M&A), no clawback

**Why:** Prevents reps from overselling or misrepresenting product.

---

## Draws vs. Pure Commission

### What's a Draw?

**Definition:** Advance payment against future commissions

**Recoverable Draw:** Rep must pay back if they don't earn enough commission
**Non-Recoverable Draw:** Rep keeps it even if commissions are low

### When to Use Draws

**Scenario 1: New Reps (Ramp Period)**

New reps need 3-6 months to ramp before closing deals.

**Solution:** Non-recoverable draw for first 3 months

**Example:**
- Base: $75K/year = $6,250/month
- Draw: $3,000/month for first 3 months
- **Total:** $9,250/month during ramp

After 3 months, draw ends and commissions kick in.

**Scenario 2: High-Risk Reps**

**Solution:** Recoverable draw (pay it back once deals close)

**BlackRoad OS Recommendation:** Non-recoverable draw for first 90 days (reduce ramp risk)

---

## Payment Timing

### When Do Reps Get Paid?

**Option 1: When Deal Closes (Booked)**
- Pro: Immediate gratification
- Con: Risk of churn/non-payment

**Option 2: When Customer Pays (Cash Collected)**
- Pro: Aligns with company cash flow
- Con: Delays payout (demotivating)

**Option 3: Hybrid (Recommended)**
- **50% on close** (contract signed)
- **50% on first payment** (cash collected)

**Why Hybrid?** Balances motivation with financial prudence.

**BlackRoad OS Recommendation:** 50/50 split (close + payment)

---

## Multi-Year Deals

**Problem:** 3-year deal worth $900K. Does rep get $90K commission upfront?

**Solution:** Commission on Year 1 ACV only

**Example:**
- 3-year deal: $300K/year × 3 years = $900K TCV
- Commission paid on: $300K (Year 1 ACV)
- Commission: $300K × 10% = $30K

**Why:** Reduces cash flow risk and aligns with revenue recognition.

**Exception:** Multi-year SPIF can reward 2-3 year contracts with bonus.

---

## Territory-Based Adjustments

Territories are not equal. Adjust quotas and comp accordingly.

### Territory Multipliers

| Territory Type | Quota Multiplier | Why |
|----------------|------------------|-----|
| **Enterprise Named Accounts** | 1.5x base | Longer cycles, higher ACV, more complexity |
| **Mid-Market Vertical** | 1.0x base | Baseline |
| **SMB Inbound** | 0.8x base | Shorter cycles, lower ACV, higher volume |

**Example:**
- Base Quota: $400K
- Enterprise Territory: $400K × 1.5 = **$600K quota**
- SMB Territory: $400K × 0.8 = **$320K quota**

**Commission remains same % regardless of territory.**

---

## Team-Based Incentives

**Problem:** Sales is a team sport. AE + SE + SDR all contribute.

**Solution:** Split commission

### Split Commission Model

**Standard Deal:**
- AE: 80% of commission
- SE: 15% of commission
- SDR: 5% of commission

**Example: $100K deal, 10% commission = $10K total**
- AE gets: $8K
- SE gets: $1.5K
- SDR gets: $500

**Why:** Rewards collaboration and ensures SEs/SDRs are invested in close.

---

## Sales Manager Compensation

**Challenge:** Managers don't carry quota. How do you incentivize them?

### Manager Comp Structure

**Base:** $130K
**Variable:** $70K (based on team performance)

**Payout Formula:**
```
Manager Bonus = (Team Quota Attainment %) × $70K
```

**Example:**
- Team Quota: $4M (4 reps × $1M each)
- Team Closed: $3.6M (90% attainment)
- Manager Bonus: 90% × $70K = **$63K**

**Total Comp:** $130K + $63K = **$193K**

---

### Manager Overrides

**Alternative Model:** Manager gets % of team's revenue

**Override Rate:** 2-3% of team revenue

**Example:**
- Team closes $4M
- Manager override: 3% × $4M = **$120K**

**BlackRoad OS Recommendation:** Use quota attainment model (simpler, less conflict)

---

## VP Sales Compensation

**Base:** $180K
**Variable:** $120K

**Payout Criteria:**

| Company ARR Attainment | VP Bonus |
|------------------------|----------|
| **<80%** | $0 |
| **80-90%** | $60K (50% of variable) |
| **90-100%** | $120K (100% of variable) |
| **100-110%** | $150K (125% of variable) |
| **110-120%** | $180K (150% of variable) |
| **120%+** | $200K+ (accelerators) |

**Why:** VP is accountable for overall company ARR. Comp tied to company success.

---

## Comp Plan Communication

### Transparency is Key

**What Reps Need to Know:**
1. How quota is set
2. How commission is calculated
3. When they get paid
4. What counts toward quota (and what doesn't)
5. Clawback policy
6. SPIFs and bonuses

**Delivery:**
- 1-page comp plan summary (simple language)
- Detailed comp plan document (this doc)
- Calculator spreadsheet (so reps can model earnings)
- Q&A session (answer questions)

**Announce comp plan changes 60 days before effective date.**

---

## Compensation Plan Calculator (Template)

Provide reps with a Google Sheet to model earnings:

| Input | Value |
|-------|-------|
| **Annual Quota** | $400,000 |
| **Base Salary** | $90,000 |
| **Expected Attainment %** | 120% |

| Output | Value |
|--------|-------|
| **Revenue Closed** | $480,000 |
| **Commission Earned** | $54,400 |
| **Total Comp** | $144,400 |

**Link:** [Comp Calculator Spreadsheet]

---

## Compensation Metrics to Track

| Metric | Target | Why |
|--------|--------|-----|
| **Average Quota Attainment** | 80-85% | Indicates quota is fair (not too easy/hard) |
| **% of Reps at >100%** | 30-40% | Healthy distribution (not everyone wins, but many do) |
| **% of Reps at <60%** | <20% | Too many underperformers = quota or hiring problem |
| **Commission as % of ARR** | 10-15% | Sales efficiency (lower is better) |
| **OTE vs. Actual Comp** | 90-110% | If actual is <80%, quota is too hard |

---

## When to Adjust Comp Plan

### Annual Review (Q4)

**Questions to Ask:**
1. Are we attracting top talent? (market comp comparison)
2. Is average attainment 80-85%? (quota calibration)
3. Are accelerators motivating behavior? (close rates in Dec vs. Jan)
4. Are we rewarding the right behaviors? (new ARR vs. expansion)

**Changes Allowed:**
- Quota adjustments (up or down based on company growth)
- Commission tier adjustments (more aggressive accelerators)
- SPIF introduction (for strategic priorities)

**Changes Prohibited Mid-Year:**
- Base salary cuts (unless performance issue)
- Commission rate reductions (breaks trust)
- Retroactive clawbacks (illegal in most states)

---

## Legal & Compliance

### Commission Plans Must Comply with Labor Law

**Key Rules:**
1. **Put it in writing:** Comp plan must be documented
2. **Pay on time:** Commissions are wages (must pay per state law)
3. **No retroactive changes:** Can't change past comp
4. **Clawbacks must be agreed upfront:** Can't surprise reps

**Consult legal counsel before implementing comp plan.**

---

## Compensation Plan Versions

### Version 1.0 (Startup Phase: $0-$2M ARR)

**Focus:** Land new customers

**Structure:**
- Base: Lower (cash preservation)
- Variable: Higher (commission-driven)
- Split: 40/60 (base/variable)
- SPIFs: Aggressive (new logo bonuses)

---

### Version 2.0 (Growth Phase: $2M-$10M ARR)

**Focus:** Scale and expand

**Structure:**
- Base: Moderate (attract experienced reps)
- Variable: Balanced
- Split: 50/50
- Expansion ARR: Equal weight to new ARR
- Renewal kickers: Introduced

---

### Version 3.0 (Mature Phase: $10M+ ARR)

**Focus:** Efficiency and retention

**Structure:**
- Base: Higher (competitive market rates)
- Variable: Performance-based
- Split: 55/45
- NRR bonus: Significant (retention is king)
- Territory specialization: Different comp by segment

**BlackRoad OS Current Phase:** Version 1.0 → 2.0 transition

---

## Compensation Philosophy Summary

**Principles:**

1. **Pay for Performance:** Top performers should earn 2-3x base
2. **Transparency:** Reps understand exactly how they're paid
3. **Fairness:** Quotas are achievable (80-85% average attainment)
4. **Alignment:** Comp drives behaviors company needs (new ARR + expansion)
5. **Simplicity:** Reps can calculate commission in their head
6. **Urgency:** Accelerators create urgency to close deals

**What Success Looks Like:**
- Reps are motivated (hitting quota feels achievable)
- Top performers stay (earning well above OTE)
- Company hits revenue targets (coverage factor works)
- Turnover is low (<20% annual)

---

## Sample Comp Plan Summary (1-Pager for Reps)

```
BlackRoad OS Sales Compensation Plan
Mid-Market Account Executive

BASE SALARY: $90,000/year
VARIABLE (OTE): $110,000/year
TOTAL OTE: $200,000/year

ANNUAL QUOTA: $400,000 ACV (New ARR + Expansion ARR)

COMMISSION TIERS:
- 0-60%:     5% commission
- 60-80%:    8% commission
- 80-100%:   10% commission
- 100-120%:  15% commission
- 120%+:     20% commission (accelerator)

PAYMENT TIMING:
- 50% on contract signature
- 50% on first customer payment

SPIFS:
- Q4 Close Bonus: $5K per deal closed in last week of quarter
- Multi-Year Bonus: +5% commission on 2-year deals, +10% on 3-year

RENEWAL KICKER:
- 110%+ NRR on your book: $10K annual bonus

CLAWBACK:
- Customer churn <90 days = commission repayment

Questions? Ask your sales manager or salesops@blackroad.io
```

---

## FAQs

**Q: What if I close a deal on Dec 31 but customer doesn't pay until Jan 15?**
A: You get 50% commission in Dec, 50% in Jan (per hybrid payment model).

**Q: Do I get credit for expansions from accounts I didn't land?**
A: If account is assigned to you, yes. If not, no.

**Q: What if customer downgrades mid-year?**
A: No clawback (you earned commission on original deal). But NRR bonus may be affected.

**Q: Can quota change mid-year?**
A: No, unless extraordinary circumstances (approved by VP Sales + CEO).

**Q: What if I leave the company before commission is paid?**
A: Earned commissions must be paid per labor law (even if you leave). Unearned commissions are forfeited.

---

## Compensation Plan Checklist

### Before Launch:
- [ ] Define quotas by role
- [ ] Set commission tiers
- [ ] Document clawback policy
- [ ] Create comp calculator spreadsheet
- [ ] Review with legal counsel
- [ ] Communicate to team (60-day notice)
- [ ] Get written acceptance from each rep

### Monthly:
- [ ] Calculate commissions
- [ ] Pay on time (per state law)
- [ ] Update quota attainment dashboard

### Quarterly:
- [ ] Review attainment distribution
- [ ] Adjust SPIFs if needed
- [ ] Celebrate top performers

### Annually:
- [ ] Benchmark against market
- [ ] Adjust quotas for next year
- [ ] Evaluate commission structure
- [ ] Plan comp changes (effective Jan 1)

---

**Version:** 1.0.0
**Last Updated:** January 4, 2026
**Owner:** Joaquin, Sales Master

*Fair pay. Clear incentives. Winning teams.*