Sales Compensation Glossary

ARR stands for Annual Recurring Revenue, which is the amount of recognized revenue in a period. There can also be QRR (Quarterly Recurring Revenue) and MRR (Monthly Recurring Revenue).

ASC 340 is a set of guidelines established by the FASB for accounting for and reporting on certain types of liabilities, specifically deferred costs associated with certain contracts. It is part of the broader FASB Accounting Standards Codification, which is a comprehensive set of guidelines that covers all accounting and financial reporting standards in the United States. The purpose of ASC 340, like other ASC sections, is to establish a clear and consistent set of rules and principles for financial reporting, in order to ensure that financial statements are transparent and comparable across different companies and industries.

ASC 605 was a financial accounting standard in the United States that provided guidance on how to recognize revenue for different types of transactions. It was replaced by ASC 606 in 2014, which introduced a new, more comprehensive revenue recognition standard focused on identifying performance obligations and allocating revenue to those obligations.

The ASC 606 Standard is an accounting standard that states revenue should be recognized when a company fulfills its performance duty by transferring the promised goods or services to the customer.

An accelerator is a commission structure in sales compensation plans that rewards salespeople with higher commission rates as they achieve or exceed their sales targets. It is designed to motivate salespeople to exceed their sales goals and can be applied to individual sales or overall performance. It is often used in combination with a base commission rate to create a more dynamic sales compensation plan.

Achievement refers to the attainment of set targets or goals by a salesperson or a sales team within a specific period. It is the ability to effectively and efficiently convert leads into actual sales, meet or exceed revenue quotas, and ultimately contribute to the growth of a business. It requires a combination of skills, including effective communication, relationship building, product knowledge, and the ability to overcome objections and close deals. Successful sales achievement is often measured by metrics such as the number of deals closed, revenue generated, and customer satisfaction ratings.

An active user refers to a customer who is currently using or engaging with a product or service on a regular basis.

A sales agent is a self-employed professional who promotes products or services and helps sign sales contracts between the company and consumers.

Analytics or sales analytics is the process of collecting, measuring, managing, and analyzing sales data using various tools and methods. It helps sales teams make informed decisions about customers, product lines, market potential, and team performance.

An annual bonus is a sum of money paid yearly to employees on top of their annual income. It may or may not be related to their performance.

An annual wage adjustment is a periodic change in an employee's salary or wage, often done annually. It can take the form of a cost-of-living increase, a merit-based increase, or an adjustment to keep up with industry standards. The purpose is to ensure fair and competitive compensation and to reward employees for their contributions. Specific terms vary by employer, job performance, and other factors.

At-risk pay, also known as incentive pay, variable pay, and pay-for-performance, is compensation contingent on performance.

Attainment refers to the level of success or achievement that a salesperson or a sales team has reached in terms of meeting or exceeding their sales targets or quotas. Attainment is usually measured as a percentage of the sales target or quota that has been achieved during a specific period of time, such as a month, quarter, or year. For example, if a salesperson has a monthly sales target of $50,000 and they sell $60,000 worth of products or services in that month, their attainment would be 120%. Attainment is an important metric for assessing the performance of sales teams and individual salespeople.

Basic pay or base salary is the minimum payment a person receives based on their qualifications and job posting. The sum is established by the Human Resources department's rules and does not include other kinds of remuneration, perks, or incentives.

Best practices are procedures or strategies that have been demonstrated to yield results that are superior to those attained by other means; they are frequently referred to as the standard. The best approach for salespeople and sales managers to achieve their targets and objectives is by adhering to these principles.

Typically, a sales bonus is an incentive payment that is triggered by a yes/no decision (e.g., did the sales representative meet a threshold?). If yes, then bonus payment) This is distinct from a commission, which is earned incrementally when greater levels of performance are attained (i.e. a rep may make a commission on each deal). It is essential to remember that not all sales compensation experts use these terminologies identically. Some sales compensation professionals use "bonus" and "commission" interchangeably.

CRM stands for Customer Relationship Management. It refers to a set of practices, strategies, and technologies that companies use to manage and analyze customer interactions and data throughout the customer lifecycle, with the goal of improving customer satisfaction and retention, as well as driving sales growth. CRM systems typically include tools for managing customer data, tracking customer interactions and communication, automating sales and marketing processes, and analyzing customer behavior and preferences to better target sales and marketing efforts.

The monetary spending limit or restriction is known as the cap. In sales, it is the most money an employee may earn in a certain period.

Capped commissions are a form of compensation structure that limits an employee's or salesperson's earnings to a maximum amount, regardless of how much revenue they generate. This is often used to control costs or prevent excessive commissions, but it may also discourage high-performing employees from putting in extra effort if there is no financial incentive beyond the capped amount.

A sales channel serves as a conduit for the distribution and sale of goods and services on the market. Using direct (website, salesforce, etc.) or indirect (brokers/agents, partners, etc.) channels, a firm may distribute or sell its products or services.

When a business reverses or recovers a previously paid incentive, this is known as a clawback. Typically, clawbacks occur when a consumer returns a product or cancels a contract for which a sales representative has been compensated. Yet, they can also occur if the initial calculation contained flaws (e.g. the sales amount was entered incorrectly).

Performance management relies heavily on coaching or sales coaching. It is the process of enhancing the performance of a team or an individual salesperson by inspiring, training, and coaching them to attain their goals. The ultimate goal is to boost the KPIs (key performance indicators) like revenue growth, customer satisfaction, etc.

Commission tracking software is a tool used by companies to manage and automate the process of tracking and calculating sales commissions for their employees. This software typically integrates with the company's sales data and CRM systems to accurately calculate commissions based on predefined commission structures and rules. Commission tracking software helps to eliminate manual errors and disputes, improves transparency, and provides real-time visibility into sales performance and compensation. It can also generate reports, provide analytics, and offer insights to help organizations optimize their sales compensation strategies.

Sales commission metrics are the Key Performance Indicators (KPIs) of an organization that measures a salesperson's success with the organization's goals and objectives.

The commission per sale is a form of compensation where an employee or salesperson is paid a percentage or fixed amount of money for each product or service they sell. This commission is typically a percentage of the total sale amount, and it serves as an incentive for the salesperson to sell more and generate more revenue for the company. The commission rate may vary depending on the product or service being sold and the company's policies. The commission per sale is a common method of compensation in industries such as real estate, retail, and financial services.

A sales commission rate links the performance of the salesperson to their monetary reward. Often, it is a fixed percentage expressed as a percentage. For instance, if you establish a 20% sales commission rate and a salesperson sells $10,000 worth of products in a month, you must pay him/her a fee of $2,000.

Commissions are a type of payment. Individuals are paid "variable" incentives since they are contingent on performance. Often, commissions represent a proportion of sale volume, revenue, gross margin, or other variables. Commissions are paid in addition to pay and other forms of compensation.

Commissions expense is the cost of compensating sales representatives or agents for their efforts in generating revenue for a company. It is recognized as an expense on the company's income statement and is usually calculated as a percentage of the sales revenue. It can be a significant expense for companies with large sales teams.

Compensation Management Software is a tool for viewing and modifying compensation policies, planning bonuses and commission components, and recommending pay modifications.

A compensation strategy is a comprehensive plan for aligning a company's rewards, benefits, pay, and other forms of remuneration with its goals.

Compensation administration refers to the management of an organization's compensation programs, policies, and practices. This includes the design, implementation, and evaluation of salary, bonuses, benefits, and other forms of compensation offered to employees. The goal of compensation administration is to attract, retain, and motivate employees while aligning compensation with the organization's objectives and budget. Effective compensation administration requires consideration of internal and external factors such as the job market, industry norms, legal requirements, and the organization's financial resources. Sales management has access to three main compensation plans: salary, commission, and combination (salary + incentive) plans.

CPQ systems allow sales personnel to generate product or service options, prices, and quotes with precision. By decreasing quote errors and rework, such systems are characterized by quick and precise responses to requests from prospects.

A decelerator is a reduced commission rate that decreases a sales representative's compensation compared to their base commission rate. It can be used as a penalty for poor performance before reaching the quota or to prevent excessive rewards after the quota is met. Decelerators should be used with caution as they can demotivate sales representatives. An example of a decelerator would be reducing commission rates for sales representatives who do not meet their quota or reverting commission rates back to the base rate after surpassing a certain percentage of quota to avoid excessive payouts.

Direct credit refers to a payment arrangement where the buyer purchases goods or services on credit directly from the seller, rather than obtaining financing from a third-party lender. In this arrangement, the seller extends credit to the buyer and allows them to make payments over a specified period of time. Direct credit can be a convenient option for buyers who may not have access to traditional financing or prefer to deal directly with the seller. However, it also carries risks for the seller, such as the possibility of non-payment or late payment.

Dispute resolution refers to several processes that can be used to resolve or settle disputes related to commission cuts, commission splits, ambiguous language in the contract or commission paperwork, etc. There are three main alternatives to litigation for settling disputes: negotiation, mediation, and arbitration.

A sales representative's ability to borrow funds against future commissions. Draws can be "recoverable" (the sales representative must repay the corporation with future commissions) or "non-recoverable" (no need to pay it back). Draws are often utilized to bridge the gap between when new sales representatives begin their jobs and when they begin earning commissions for making sales.

A draw against commission is a payment structure used in sales jobs where an employee receives a regular payment (the "draw") as an advance on future commissions. If the employee earns enough commission to exceed the draw, they keep the excess as their commission. However, if the employee does not earn enough commission to exceed the draw, they may be required to pay back the difference to the employer. The purpose of a draw against commission is to provide sales employees with a predictable income while still incentivizing them to sell as much as possible.

A component of an organization's incentive and compensation plans for senior management. These include long-term or annual incentives, deferred compensation, competitive benchmarks, and retention plans.

A component of an incentive compensation or commission plan that, when satisfied, enables the payment of another component. For instance, meeting a particular percentage of a sales quota can be a prerequisite for receiving a sales bonus when a salesperson sells x or more units of a product.

Guaranteed pay typically refers to a base salary that is paid to a salesperson regardless of their performance or sales results. This means that the salesperson is guaranteed to receive a certain amount of money as their compensation, even if they do not meet their sales targets or generate revenue for the company. Guaranteed pay is often used as a way to provide financial stability to salespeople while also incentivizing them to exceed their sales goals and earn additional commission or bonuses based on their performance.

Hierarchy is a system of ranking individuals within an organization based on skill level, seniority, and commission paid. There may be multiple hierarchies within a single organization, and remuneration may be distributed through multiple levels of the chain of command. Organizational hierarchies can also be used for security purposes, by excluding specific personnel from accessing software systems and data reports. Additionally, hierarchies can be used to show relationships between different entities, such as product categories and subcategories or customers in specific regions.

Incentive Compensation Management, abbreviated ICM, is software that enables Sales Compensation Managers to automate processes, such as running computations and generating reports, with the added benefit of avoiding spreadsheet-related errors.

Incentives for sales are the prizes and benefits granted to salespeople for accomplishing specified targets, typically the sale of items or services, to encourage additional sales.

A form of sales commission arrangement in which payees are compensated for sales they may not have personally closed.

Individual incentive systems are often employed when employees have control over outcomes, they are accurately monitored, and they foster healthy competition.

Key Performance Indicators (KPIs) are high-level, quantitative measurements used to assist a firm in monitoring its progress toward its larger objectives, such as organizational initiatives. KPIs differ based on the organization's goals. For example, growth KPIs may include revenue and market share, while profitability KPIs may include net margin and cost of sale.

A higher commission rate increases a sales representative's compensation relative to what she would have earned at her base commission rate. Kickers are accustomed to rewarding excellence. Typically, they are activated when a sales representative meets his or her quota. Jennifer will earn $10,000 if she meets her quota of $100,000; therefore, her base commission rate is 10%. Once Jennifer reaches their goal, her commission rate will increase to 12 percent to provide an additional incentive for her to continue her outstanding performance.

Line of Business refers to business segments that can be distinguished by the products and services sold, the size of the client base, the demands of the customer base, the distribution channel, and the brand.

Long-term incentives are compensation plans that reward and retain key employees for achieving specific performance goals over an extended period, usually several years. They usually take the form of equity-based awards such as stock options or restricted stock units and aim to align the interests of employees with those of the company's shareholders to encourage long-term commitment to the company's success.

Management by Objectives is a way of enabling managers and team members to collaboratively identify common performance goals.

The non-recoverable draw is a type of compensation arrangement in which a salesperson receives an advance on their future commissions, and is not required to pay back the advance if their commissions do not exceed the amount of the draw. This provides the salesperson with a guaranteed source of income but can be risky for the company if the salesperson does not generate enough commissions to cover the cost of the draw.

Everything on-demand refers to software as a service that requires little to no installation and may be accessed quickly through the Internet.

Conventional software applications or programs must be installed on a device or piece of hardware within the actual location of a business.

On-Target Commissions (also known as OTE On-Target Earnings) refer to the amount paid to a payee if all their targets have been achieved.

On-Target Earnings (or simply Target Earnings) refers to the amount a payee receives if all of their targets are met. The compensation earnings of a salesperson are comprised of base salary and variable compensation plans components such as bonuses and commissions.

A sales commission override is a type of indirect payment, comparable to a roll-up, in which an employee receives a percentage of the commission for a transaction made by another employee. For example, a product manager might indirectly receive a 2.5% override on their products sold by sales representatives, even though the representatives do not work for them.

A pain point is a specific issue (such as with a product or service) that annoys prospects as they progress through the sales funnel. Customers may encounter issues with online research, website navigation, product cost and availability, checkout, multi-channel shopping, tracking, and delivery, among other things.

Pay mix refers to the proportion of a salesperson's total compensation that consists of salary and commission. It is the ratio between basic compensation and incentive targets. A 70/30 pay mix, for instance, indicates that 70% of total on-target earnings are fixed base salaries and 30% of total on-target earnings are variable commissions.

Participants or Payees are persons or individual entities whose compensation is variable dependent on their performance as specified by the Incentive Compensation Management system.

Sales incentive plans are made up of several components, such as commission rates, territories, quotas, gates, periods, etc. to calculate how much payees are remunerated.

A communication strategy is a road map meant to offer stakeholders a clear, precise message about a newly introduced product or service. It specifies who should receive specific information when they should receive it, and via what communication channels. An agreement between a client and a manager that specifies the tasks and criteria to be met to get the final approval from the client after the project is called an acceptance plan.

Compensation plan design is the process of designing a plan that includes components that add up to a sales representative's base salary, commissions, bonuses, etc., by aligning them with business goals and financial objectives. Plan Design Modeling examines several plan design choices and evaluates how different levels of sales results will affect the total commission budget and how this would affect plan members.

A person's place in an organizational structure or hierarchy is known as his/her position. It outlines their responsibilities within an organization. Examples of certain positions include regional sales manager, sales manager, inside sales representative, outside sales representative, sales assistant, sales engineer, etc.

Extra compensation or monetary sum added to an employee's regular wage (e.g., overtime, double-time for holidays, etc.). This could also refer to the cost of an insurance contract in an insurance parlance (e.g., a life insurance premium).

Adjustments made to the payout element of an incentive by qualifying requirements, such as length of service or probationary periods.

A sales-qualified lead is a prospective customer that has been researched and vetted according to an organization's lead qualification criteria — first by an organization's marketing department and then by its sales team — and is deemed ready for the next stage in the sales process, i.e. they are ready to be pursued by the sales team for conversion into a paying customer.

A quota, also known as a goal, aim, performance target, or target, is the amount a salesperson must sell within a specific time (month, quarter, year) to receive a commission. It can be stated in terms of absolute numbers, percentages, or the number of products or services sold or recovered by future payments.

Quota attainment is a measure of a salesperson's performance that calculates the percentage of their sales quota that has been achieved within a given time period. It is an important metric for sales managers to track and can be used to evaluate individual sales reps, the effectiveness of the sales team as a whole, and identify areas for improvement. Consistently meeting or exceeding quota is a key indicator of a top-performing salesperson, while falling short may result in corrective action or termination.

A recoverable draw is an advance payment made to an employee against future earnings, often used in industries with commission-based compensation. The employee receives the draw in advance and repays it over time from their future earnings. If the employee doesn't earn enough to repay the entire draw amount, the difference may be written off by the employer as a loss. The purpose of a recoverable draw is to provide financial support to employees with irregular income streams or who are just starting out in their roles.

Popular in the Software as a Service (SaaS) business subscription model, recurring revenue in sales refers to payments made at specified intervals, such as ARR (Annual Recurring Revenue), QRR (Quarterly Recurring Revenue), and MRR (Monthly Recurring Revenue) (Monthly Recurring Revenue).

According to Canidium, a retroactive input or decision is one that must be implemented as of a date that has passed. Hence, back payments or other changes to earlier payments may be required.

Revenue Recognition is the process of accounting for revenue earned by a company, which involves recognizing revenue when it is earned and matching it with the expenses incurred to earn that revenue. It is important because it provides information about a company's financial performance, and is used by stakeholders to evaluate the company's profitability and financial health. Revenue recognition is governed by various accounting standards and typically involves following a five-step process to determine when revenue should be recognized.

Rollup refers to a sales commission that is transferred from one payee to another based on their organizational reporting connection. For instance, if a salesperson receives credit for a sale and their management also receives credit for the same sale, this is known as a rollup.

Sales (Incentive) (Incentive) In exchange for selling a specified quantity of items or services, sales personnel (such as sales representatives, sales management, and sales support) are compensated. It is not fixed or guaranteed like base pay. Rather, it is paid in addition to it. Most sales compensation schemes include a performance-based "at-risk" component. Also known as incentive compensation, variable compensation, pay-for-performance, and at-risk pay.

The sales commission is a form of variable pay that salespeople receive for closing the deal and keeping the client for the long term.

Plans for sales commissions include all components of a sales commission, including rules, eligibility requirements, base income, and variable commission pay.

The amount provided to sales professionals (e.g. sales reps, sales management, and sales support) in exchange for sales outcomes. Includes creating strategies, administering compensation, and reporting to management.

Plans for sales compensation contain the specifics and components of a salesperson's pay for performance, which are often comprised of a basic salary, commission, and extra benefits, incentives, or bonuses.

Sales Force Automation refers to the automation of sales and sales operations-related duties.

Sales KPIs (Key Performance Indicators) are metrics used by businesses to measure the performance of their sales team and the success of their sales efforts. Examples of common sales KPIs include sales revenue, sales growth rate, win rate, average deal size, customer acquisition cost, and customer lifetime value. By tracking and analyzing these KPIs, businesses can gain insights into their sales performance and make data-driven decisions to improve their sales processes and drive revenue growth.

SPIF stands for Sales Performance Incentive Fund, which is a short-term incentive that sales managers use to motivate sales representatives to achieve specific behaviors or goals.

Sales Performance Management (SPM) is focused on maintaining the performance of a sales organization. It involves planning, administering, analyzing, and improving sales performance by integrating sales objectives with overall organizational objectives. Key components of SPM include designing sales plans, managing quotas and territories, communicating and accepting plans, administering and reporting compensation, managing incentives, resolving disputes, providing coaching, and using analytics to improve sales performance.

Quotas are sales targets that salespeople must surpass during a specified period to qualify for variable compensation.

Sales Goals are objectives for sales departments, teams, and individuals. Objectives and Quotas are equivalent terms. Generally, "Target" is employed in APAC and EMEA, whereas "Quotas" is utilized in the US. Often, targets and quotas are created for a specified period (aka period).

Sales goals are specified objectives for a salesperson or a sales team. Examples of common sales objectives include raising revenue, increasing client retention by a particular percentage, streamlining sales procedures, growing the number of customers, boosting sales personnel's productivity, and eliminating time waste.

The sales organization is responsible for selling a company's products and services, and its main goal is to distribute and sell to the customer. It also recruits and trains employees, conducts market research, manages budgets, and develops policies for channels of distribution, pricing, and other sales-related topics.

Sales Representatives work directly for the company and serve as the company's liaison with customers. Typically, they possess exceptional communication, public speaking, and negotiation abilities, which enable them to comprehend what the consumer wants, create trust with the client, and demonstrate topic mastery. They must ensure that all clients receive the products and services they requested, as well as pitch future clients.

A sales team is a group of employees tasked with selling the company's products, subscriptions, and services to customers. It has a significant impact on brand image, customer retention, developing long-term consumer connections, etc., in addition to generating revenue.

Service Level Agreements from software suppliers are assurances, like an SLA for a Service with high availability; a 99.99% uptime.

In sales, a Spiff is a special incentive or bonus offered to salespeople to motivate them to sell more of a particular product or service. It is typically a temporary bonus offered until a certain sales goal is met or for a limited time period. Spiffs can be effective in boosting sales, but it's important to design the incentive program carefully and track its results to ensure it aligns with the company's goals and values.

The number of incentive payments and associated costs that are divided among two or more employees.

By split sales commission agreements, all salespeople are compensated proportionally for their contributions. Commissions on split sales can be divided equally among contributors or customized for each payee.

Target incentive compensation is the entire variable compensation that a sales representative obtains if she meets her target performance (i.e. she hits quota). Not included in the base wage. The addition of incentive compensation to the basic wage yields earnings on target. Also known as: target commission

That is the length of time covered by the contract. Early termination of a contract incurs a cost or a penalty.

Territories are segments of prospects and accounts that are assigned to specific salespeople or teams to sell items. Each team is commissioned with responsibility for its assigned territory.

The minimum level of performance required for a salesperson to get an incentive payment is known as the threshold.

A weary commission refers to an offer's built-in milestones. To incentivize salespeople to sell more and earn more, a basic commission with its type and length is established, and then incrementally greater commissions are added on top.

The Top Performers of a business are the sales representatives with the highest win rates and who contribute to the enhancement of sales development procedures.

Total rewards also known as total compensation, encompass all facets of a recipient's income, such as long-term incentives, recognition, reward programs benefits, training, etc.

True-up is a payment adjustment strategy used to equalize or reconcile disparities between two amounts. Adjustment is made at a predetermined true-up frequency. Typically, true-up adjustments are issued after all other payment computations have been finalized.