The Cost of a Bad Comp Plan: Is Your Commission Structure Punishing Your Best Reps?
By Shawn Hamilton, M.S., DBA(c) Shawn Hamilton is a leading sales leadership advisor and doctoral researcher at the University of Houston, specializing in Sales Leadership.
The Cost of a Bad Comp Plan: Is Your Commission Structure Punishing Your Best Reps?
Your top salesperson just had their best quarter. They closed the big logo you needed, ramped up cross-sales on a new product, and hit 140% of their quota.
They open their commission check... and they're completely deflated.
Why? They can't understand it. A "product-line multiplier" kicked in, but only after a "regional gross margin gate" was met, which was then "pro-rated" based on a "new logo kicker" that didn't apply to their biggest deal.
They aren't motivated. They're confused. And your best rep is now spending their time trying to reverse-engineer your spreadsheet instead of selling.
This is the hidden cost of a "bad" comp plan. We've become so obsessed with designing "perfectly-engineered" plans that incentivize every conceivable behavior that we've forgotten the primary purpose of compensation: to clearly communicate strategic focus.
When "Strategic" Becomes "Complex"
Companies don't set out to create bad plans. They create complex ones. The logic seems sound:
"We need to grow new logos." (Add a 1.2x multiplier.)
"But we also need to protect margins." (Add a margin gate.)
"And we can't forget our new service line!" (Add a 5% kicker.)
Individually, each rule makes sense. But collectively, they create a web of conflicting, confusing incentives.
Research on sales motivation confirms the danger. In an analysis published in Harvard Business Review, researchers found that overly complex plans—especially those with too many "multipliers"—often have the opposite of their intended effect (Madhu, Steenburgh, & Ahearne, 2018).
When a plan is too complex, reps can't easily calculate the "effort-to-reward" ratio. They don't know which activity will actually pay them the most. Faced with this uncertainty, they don't try to optimize for all 10 goals. Instead, they give up and default to the one thing they do understand: selling the easiest product to the easiest customer.
This is how your "strategic" comp plan ends up punishing your best reps. It forces them into short-term, simple-minded thinking because you've made the strategic path too confusing to follow.
The Litmus Test: Is Your Comp Plan a Map or a Maze?
A good comp plan is a map. It clearly shows the rep the path to success for both themselves and the company. A complex comp plan is a maze. It’s a puzzle to be solved, full of dead ends and hidden traps.
When your A-players feel like they're in a maze, they do one of two things:
They stop running and focus only on the "cheese" they can see.
They find a new, simpler maze to run (i.e., your competitor).
Actionable Takeaways
You don't need a "perfect" plan. You need a clear one.
Run the "Gas Station Test." Could your average rep calculate their commission on the back of a napkin (or in their head) while filling up their gas tank? If the answer is "no," your plan is too complex.
Follow the "Rule of Three." A single sales compensation plan should never try to incentivize more than three distinct behaviors or outcomes (e.g., 1. Total Revenue, 2. New Logos, 3. Strategic Product Mix). Any more than that and you dilute focus to the point of confusion.
Separate "Compensation" from "Recognition." If you want to drive a specific short-term behavior (like a Q4 push for a new product), don't mess with the core comp plan. Use a "SPIF" (Sales Performance Incentive Fund) or a non-cash bonus. Use compensation for your core strategy; use SPIFs for temporary tactics.
Your comp plan is the single most important message you send to your sales team. If it takes a 30-page slide deck to explain it, you're not sending a message—you're sending a problem.
References
Madhu, T., Steenburgh, T., & Ahearne, M. (2018, July–August). Motivating salespeople: What really works. Harvard Business Review, 96(4), 115–123.
