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Glossary Terms
Compass - The Only Sales Glossary You Need
The compensation structure of an organization refers to the framework or system through which employees are rewarded for their contributions to the company. It encompasses various elements, including fixed and variable components, as well as non-monetary benefits. A well-designed compensation structure not only attracts and retains talent but also aligns with the organization's goals and values.
A compensation structure is the framework a company uses to determine how employees are paid. It outlines salary ranges, bonus eligibility, commissions, and other incentives tied to roles and performance levels. For sales teams, a clear compensation structure ensures transparency around base pay, quotas, and on-target earnings.
A pay structure is a key part of compensation structures that defines how salaries and incentives are organized across different roles and levels. It includes salary bands, job grades, and performance-based pay components, ensuring fairness, consistency, and competitive positioning in the market.
Components of a compensation structure typically include:
A typical compensation structure varies depending on industry, company size, and other factors. However, it often includes a combination of base salary, bonuses, and benefits, with performance incentives and stock options added for certain roles or industries.
In sales, motivation and performance are directly linked to compensation. A well-designed compensation structure helps align reps with company goals, drive revenue, and reduce turnover. Without it, sales teams may face confusion, misaligned incentives, or dissatisfaction.
Sales compensation structures should be reviewed at least annually, or when there are changes in market conditions, product offerings, or sales targets. Regular updates help maintain competitiveness, support evolving business strategies, and keep top performers engaged.
An effective structure should include:
For sales, it’s also key to include incentive levers that reward both short-term wins and long-term customer growth.
It typically includes components like base salary, commission rates, performance bonuses, and accelerators. For example, a common compensation structure example for sales might be 60% base salary and 40% variable pay, with tiered commissions that increase once reps exceed quota.
To build a solid compensation structure, follow these steps:
Well-designed compensation structures help attract and retain top talent while keeping pay practices fair and consistent.
Structuring equity compensation involves planning for both value and retention:
This is especially important in startups or growth-stage companies where equity complements cash compensation.
Sales compensation structures should drive performance and reward results:
A smart sales compensation structure ensures your reps are aligned with revenue goals and incentivized to close deals efficiently.
