A sales commission or incentive plan document is an official, detailed guide that outlines how sales employees will be compensated based on their performance. This document is shared with all sales employees at the start of the year so they can understand how they will be incentivized.
Key components of a sales incentives plan document
- Eligibility criteria
- Specify eligible employees (e.g., inside sales, field sales, account managers).
- Include any probationary period or ramp up period for new hires.
- Compensation structure
- Commission rate: Specify commission rates for different products. This could be a flat rate or tiered based on sales volume, product type, or other factors.
- Additional components: Include bonuses, clawback, or commission cap, other performance accelerators and deaccelerators.
- Quota and targets
- Define clear, achievable quotas and targets. Include how they are set (annually, quarterly, monthly) and any seasonality considerations.
- Mention any adjustments that can be made to quotas during the plan period.
- Commission calculation
- Detail how the commission is calculated, including formulas and examples.
- Clarify which sales activities or deals are commissionable and which aren’t (e.g., existing clients vs. new business).
- Mention the incentive compensation management software you use, if any. Mention the platform you use to calculate and how they can access it.
- Payment terms and frequency
- Explain the commission payout frequency (e.g., monthly, quarterly).
- Define when commission payments are processed after a deal closes.
- Mention any holdback periods or requirements (e.g., payment on customer raising invoice.).
- Clawback and adjustments
- Outline clawback policies for cancellations, returns, or unpaid accounts.
- Specify the conditions under which clawbacks apply and the process for recovering commissions.
- Review and approval Process
- Explain the approval process for commission payouts.
- Mention who reviews and signs off on commissions (e.g., sales manager, finance).
- Dispute resolution
- Outline a process for commission disputes, including whom to contact and typical timelines for resolution.
- Terms and Conditions
- Add disclaimers for plan changes, management’s right to adjust targets, or other adjustments due to external factors.
Best Practices for creating a sales incentive plan document
Here are three best practices to follow:
No uninformed changes
Ensure that any modifications to the commission plan are communicated well in advance. Avoid sudden changes mid-cycle that could disrupt sales team morale or lead to mistrust. If changes are necessary, provide detailed explanations and the rationale behind them to maintain transparency.
Access to all information
Sales representatives should have full access to all relevant information needed to track their performance and commission earnings. This includes real-time access to data, such as sales numbers, target progress, and commission calculations, ideally through a centralized dashboard or reporting tool.
Clear and detailed
Avoid overly complex commission calculations or ambiguous terms. Use straightforward language and examples in the commission plan to make sure sales reps can easily understand how their compensation is calculated and what’s expected of them.
Easily upload incentive plan document to ElevateHQ
When you use ElevateHQ to automate your commission calculation, you ensure calculation transparency among sales teams. Moreover, you can easily add the plan document to the platform for your employees to view whenever required.