# Sales Compensation Plan Pack

**Company:** [Company Name] — Seed-Stage B2B SaaS (API Monitoring Tool)
**Effective Date:** Q2 2026
**Plan Year:** 2026
**Prepared For:** First two Account Executive hires
**Approved By:** [CEO / Founder Name]

---

## Table of Contents

1. [Executive Summary](#1-executive-summary)
2. [OTE and Pay Mix Recommendations](#2-ote-and-pay-mix-recommendations)
3. [Quota-Setting Methodology with 3-Month Ramp](#3-quota-setting-methodology-with-3-month-ramp)
4. [Commission Mechanics and Accelerators](#4-commission-mechanics-and-accelerators)
5. [Retention-Alignment Addendum](#5-retention-alignment-addendum)
6. [Admin Rules for Edge Cases](#6-admin-rules-for-edge-cases)
7. [Rep-Facing FAQ Document](#7-rep-facing-faq-document)
8. [Appendix: Definitions and Glossary](#8-appendix-definitions-and-glossary)

---

## 1. Executive Summary

### Context

We are a seed-stage B2B SaaS company with an API monitoring tool at a $15k ACV, a 40-day average sales cycle, and current ARR of $50k. We are hiring our first two Account Executives and need to close approximately $550k in net-new ARR this calendar year to reach our $600k target. This plan establishes a compensation structure that attracts strong talent, rewards performance, aligns incentives with sustainable revenue (not just closed deals), and protects the company against early churn from rushed deals.

### Design Principles

| Principle | How It Shows Up in This Plan |
|---|---|
| **Competitive pay** | OTE at or above 50th percentile for seed-stage B2B SaaS AEs |
| **Simplicity** | One primary commission rate, one accelerator tier, one holdback mechanism |
| **Retention alignment** | 20% commission holdback released only after customer passes 90-day mark |
| **Performance reward** | 1.5x accelerator kicks in above 100% quota attainment |
| **Founder partnership** | 3-month ramp acknowledges that founder-led pipeline handoff takes time |
| **Capital efficiency** | Variable pay is self-funded by revenue; base is manageable for seed-stage cash |

---

## 2. OTE and Pay Mix Recommendations

### 2.1 On-Target Earnings (OTE)

| Component | Amount |
|---|---|
| **Annual OTE** | $120,000 |
| **Base Salary** | $66,000 (55%) |
| **On-Target Variable (OTV)** | $54,000 (45%) |

**Rationale:**
- For seed-stage B2B SaaS with $15k ACV deals, OTE of $120k is competitive at the 50th–60th percentile for markets outside of SF/NYC. Adjust upward by $10–15k for tier-1 metro areas.
- A 55/45 base-to-variable split (rather than the more aggressive 50/50) is appropriate because: (a) seed-stage companies carry more pipeline risk — the territory and lead flow are unproven; (b) a slightly higher base attracts candidates who might otherwise avoid early-stage risk; (c) 45% variable still provides meaningful upside motivation.
- At $15k ACV, the OTE-to-quota ratio targets approximately 5:1 (see quota section), which is standard for mid-market SaaS.

### 2.2 Pay Mix Benchmarks for Reference

| Company Stage | Typical ACV | Typical Base/Variable Split | Typical OTE Range |
|---|---|---|---|
| Seed / Series A | $10k–$25k | 55/45 to 50/50 | $100k–$140k |
| Series B | $25k–$75k | 50/50 | $130k–$180k |
| Growth / Series C+ | $75k+ | 50/50 to 45/55 | $170k–$250k+ |

### 2.3 Benefits and Non-Cash Compensation (Recommended)

While not part of this comp plan, the following are strongly recommended for AE #1 and AE #2 at seed stage:

- **Equity:** 0.10%–0.25% options each (4-year vest, 1-year cliff) — critical for attracting talent who accept below-market cash
- **Benefits:** Health insurance stipend, flexible PTO
- **SPIF budget:** $2,000/quarter discretionary for strategic deal SPIFs (see Section 6)

---

## 3. Quota-Setting Methodology with 3-Month Ramp

### 3.1 Annual Quota

| Metric | Value |
|---|---|
| **Annual Company ARR Target** | $600,000 |
| **Current ARR** | $50,000 |
| **Net-New ARR Needed** | $550,000 |
| **Number of AEs** | 2 |
| **Founder-Closed (est.)** | $100,000 |
| **AE-Sourced Target** | $450,000 |
| **Annual Quota per AE** | $275,000 |

**Why $275k and not $225k ($450k / 2)?**
We set individual quotas at ~$275k (totaling $550k across both AEs) to build in quota coverage of approximately 1.2x. This accounts for natural miss rates and provides a buffer. If the founder continues closing deals, those credits go to a company pool — not against AE quota — unless an AE directly sources or closes the deal.

### 3.2 Quota Verification Check

| Check | Calculation | Result | Pass? |
|---|---|---|---|
| OTE-to-Quota Ratio | $120k OTE / $275k Quota | 0.44 (i.e., ~4.6:1 quota-to-OTE) | Yes (target: 4x–6x) |
| Deals to Hit Quota | $275k / $15k ACV | ~18.3 deals/year | Yes (feasible at 40-day cycle) |
| Deals per Month (full ramp) | 18.3 / 12 | ~1.5 deals/month | Yes (achievable for mid-market AE) |
| Avg. Deal Cycle | 40 days | ~0.75 deals per cycle at steady state | Reasonable |

### 3.3 Three-Month Ramp Schedule

New AEs receive reduced quotas during their first three months to account for onboarding, learning the product, and inheriting pipeline from founder-led sales.

| Month | Quota as % of Full Monthly Quota | Monthly Quota | Cumulative Quota |
|---|---|---|---|
| Month 1 | 25% | $5,730 | $5,730 |
| Month 2 | 50% | $11,460 | $17,190 |
| Month 3 | 75% | $17,190 | $34,380 |
| Month 4+ | 100% | $22,917 | Full run-rate |

**Full Monthly Quota Calculation:** $275,000 / 12 = $22,917/month

**Ramp Period Commission Treatment:**
- During the 3-month ramp, commissions are paid at the standard rate on all bookings — there is no reduced commission rate during ramp.
- The reduced quota simply means it is easier to hit 100% (and trigger the accelerator) during ramp months.
- Ramp quota is measured monthly during months 1–3, then shifts to quarterly measurement starting Q2.

### 3.4 Quota Cadence

| Period | Measurement |
|---|---|
| Months 1–3 (Ramp) | Monthly quota targets as shown above |
| Post-Ramp | Quarterly quotas ($68,750/quarter) |
| Annual | $275,000 |

**Why quarterly post-ramp?** At $15k ACV and a 40-day cycle, monthly quota is lumpy. A single slip can swing a month. Quarterly measurement smooths variance and reduces anxiety-driven deal rushing — which directly addresses the early-churn concern.

---

## 4. Commission Mechanics and Accelerators

### 4.1 Base Commission Rate

| Component | Detail |
|---|---|
| **Commission Rate** | 10% of net-new ACV booked |
| **Basis** | Annual Contract Value of signed deals |
| **When Earned** | Upon signed contract and booking confirmation |
| **When Paid** | 80% paid on booking; 20% held back pending 90-day retention (see Section 5) |

**Rate Derivation:**
- On-target variable = $54,000
- Annual quota = $275,000
- Effective rate at 100% = $54,000 / $275,000 = **~19.6% of quota achieved**
- Expressed as % of ACV booked: 10% base rate, with accelerators above 100%, yields approximately $54k at plan

**Simplified:** For every $15,000 deal closed, the AE earns $1,500 in commission (before holdback).

### 4.2 Accelerator Structure

| Attainment Level | Commission Rate | Multiplier vs. Base |
|---|---|---|
| 0%–100% of Quota | 10% of ACV | 1.0x |
| 101%–150% of Quota | 15% of ACV | 1.5x |
| 151%+ of Quota | 18% of ACV | 1.8x (cap at 3x OTV) |

**How Accelerators Work:**
- Accelerators apply only to incremental ACV above the attainment threshold — they are NOT retroactive to dollar one.
- Accelerators are calculated on a quarterly basis post-ramp, and monthly during ramp.

**Example — Quarterly Performance:**

| Scenario | Quarterly Quota | ACV Booked | Commission Calculation | Total Commission |
|---|---|---|---|---|
| At plan (100%) | $68,750 | $68,750 | $68,750 x 10% | $6,875 |
| Strong quarter (120%) | $68,750 | $82,500 | ($68,750 x 10%) + ($13,750 x 15%) | $8,938 |
| Blowout (150%) | $68,750 | $103,125 | ($68,750 x 10%) + ($34,375 x 15%) | $12,031 |

### 4.3 Annual Earnings Cap

Total annual variable compensation is capped at **3x OTV ($162,000)**. This cap exists to protect the company from windfall deals that would distort comp economics. Any deal that would push an AE above the cap is paid at the base 10% rate. This cap is expected to be revisited at Series A.

### 4.4 Commission Timing and Payment

| Event | Action |
|---|---|
| Deal signed + booked | 80% of commission added to next payroll cycle |
| Customer passes 90-day mark (active, not churned) | Remaining 20% released in next payroll cycle |
| Customer churns within 90 days | 20% holdback forfeited; see Section 5 for details |
| Deal downsizes within 90 days | Holdback adjusted to reflect actual retained ACV |

Commissions are paid **semi-monthly** on the 15th and last day of each month, aligned with payroll.

---

## 5. Retention-Alignment Addendum

### 5.1 Problem Statement

The company has observed early customer churn within the first 90 days, likely attributable to:
- Deals closed with poor-fit customers
- Over-promised capabilities during the sales process
- Inadequate onboarding handoff from sales to CS/support
- Compressed timelines that skip proper technical validation

This addendum ensures AE compensation is partially contingent on customer retention, creating a direct financial incentive for deal quality.

### 5.2 Holdback Mechanism

**Structure:** 20% Commission Holdback with 90-Day Retention Gate

| Component | Detail |
|---|---|
| **Holdback Percentage** | 20% of each deal's gross commission |
| **Retention Period** | 90 calendar days from contract start date |
| **Release Trigger** | Customer is active and paying at Day 91 |
| **Forfeit Trigger** | Customer churns (cancels or does not renew) within 90 days |
| **Partial Credit** | If customer downsizes within 90 days, holdback is adjusted pro-rata to retained ACV |

### 5.3 Holdback Examples

**Example A — Deal Retained (Happy Path):**
- AE closes $15,000 ACV deal on March 1
- Gross commission: $15,000 x 10% = $1,500
- March payroll: $1,200 (80%) paid immediately
- Customer active on June 1 (Day 91): $300 (20%) released in June payroll

**Example B — Deal Churns at Day 60:**
- AE closes $15,000 ACV deal on March 1
- March payroll: $1,200 (80%) paid immediately
- Customer cancels May 1 (Day 60): $300 holdback is **forfeited**
- The $1,200 already paid is NOT clawed back (see 5.4)

**Example C — Deal Downsizes:**
- AE closes $15,000 ACV deal on March 1
- Customer downsizes to $9,000 ACV at Day 45
- Original holdback: $300 (20% of $1,500)
- Adjusted commission: $9,000 x 10% = $900
- Already paid: $1,200 (80% of original $1,500)
- Overpayment of $300 ($1,200 - $900) is deducted from next commission payment
- Holdback is adjusted to $180 (20% of $900) and released at Day 91 if customer is active

### 5.4 Why Holdback Instead of Full Clawback?

| Approach | Pros | Cons |
|---|---|---|
| **Full Clawback** | Maximum churn protection | Creates adversarial relationship; potential legal issues in some states; AEs must return cash already received |
| **Holdback (chosen)** | Clean — money is never "taken back"; strong signal without hostility; easier to administer | Slightly less financial penalty for AE on churned deals |
| **No mechanism** | Simple | Misaligned incentives; does not address observed churn problem |

We chose holdback because it is enforceable, psychologically cleaner (the rep never has to write a check back), and sufficient to change behavior at our deal size.

### 5.5 Escalation Path for Disputed Churns

If an AE believes a churn was caused by factors outside their control (e.g., product outage, CS failure), they may submit a written appeal to the CEO within 10 business days of the churn event. The CEO will review with input from CS and make a final, binding determination within 5 business days.

---

## 6. Admin Rules for Edge Cases

### 6.1 Multi-Year Deals

| Scenario | Commission Treatment |
|---|---|
| **2-year prepaid contract** | Commission on Year 1 ACV only, at standard rate. Year 2 value does not count toward quota or commission. |
| **2-year contract, paid annually** | Commission on Year 1 ACV at standard rate. Year 2 renewal is eligible for a renewal bonus (see 6.3) — NOT a new commission. |
| **3-year prepaid contract** | Commission on Year 1 ACV + 25% bonus on Year 1 ACV for the multi-year commitment. Full amount subject to 90-day holdback. |

**Rationale:** At seed stage, multi-year prepaid deals are rare and valuable. We reward the commitment with a modest bonus, but do not pay full commission on out-year revenue because (a) it inflates comp beyond what the company can sustain, and (b) it distorts quota attainment calculations.

### 6.2 Expansion Revenue

| Scenario | Commission Treatment |
|---|---|
| **Upsell within first 12 months (AE-sourced)** | 10% commission on incremental ACV. Counts toward quota. Subject to 90-day holdback on the incremental amount. |
| **Upsell within first 12 months (CS-sourced)** | 5% commission to AE (account ownership credit). Does NOT count toward AE quota. |
| **Expansion after 12 months** | Handled by CS or future AM role. No AE commission unless AE directly sources and closes. |

**Account Ownership:** The originating AE "owns" the account for commission purposes for 12 months from the initial contract start date. After 12 months, account ownership transfers to CS/AM.

### 6.3 Renewals

| Scenario | Commission Treatment |
|---|---|
| **Flat renewal (same ACV)** | $500 flat renewal bonus per account, paid at renewal close |
| **Renewal with expansion** | Renewal bonus + expansion commission per 6.2 |
| **Renewal with downgrade** | No renewal bonus; no commission impact |
| **Non-renewal (churn)** | No financial penalty beyond original holdback (if applicable) |

**Note:** At our current stage, AEs will likely handle renewals for their first 12 months. As we scale, renewals will shift to CS/AM, and renewal bonuses will be eliminated from the AE plan.

### 6.4 Discounting

| Discount Level | Approval Required | Commission Impact |
|---|---|---|
| 0%–10% off list | AE discretion | Commission paid on actual ACV (discounted amount) |
| 11%–20% off list | CEO approval | Commission paid on actual ACV |
| 21%+ off list | CEO approval + written justification | Commission paid at 50% rate on the discounted ACV |

**Example:** List price $15,000. AE offers 25% discount = $11,250 ACV. Commission = $11,250 x 5% (half the standard rate) = $562.50 instead of $1,125.

**Strategic Discount Exception:** The CEO may designate specific deals as "strategic" (e.g., logo acquisition of a tier-1 brand). Strategic deals are paid at the full commission rate regardless of discount level, but must be approved in writing before the discount is offered.

### 6.5 Channel / Partner Deals

At seed stage, we do not have a formal channel program. If a partner or referral source introduces a deal:
- AE receives full commission if they run the sales process end-to-end
- If the founder closes the deal with minimal AE involvement, no AE commission is paid
- Referral fees to external partners are a company expense and do not reduce AE commission

### 6.6 Split Deals

If two AEs collaborate on a single deal (uncommon with only 2 AEs, but possible):
- The AEs must agree on the split before the deal is in Stage 3 (proposal/negotiation)
- Default split if no agreement: 50/50
- The CEO must approve all splits in writing
- Each AE's share counts toward their individual quota

### 6.7 SPIFs (Sales Performance Incentive Funds)

The CEO may declare time-limited SPIFs to drive specific behaviors:
- **Example:** "$500 bonus for every deal closed with a competitor displacement in Q3"
- SPIFs are announced in writing with clear start/end dates and eligibility criteria
- SPIFs do NOT count toward quota attainment (they are separate from the commission plan)
- Quarterly SPIF budget: $2,000 (total across both AEs)

### 6.8 Leaves of Absence and Territory Changes

| Scenario | Treatment |
|---|---|
| **PTO / Sick leave (< 2 weeks)** | No quota adjustment |
| **Extended leave (2–8 weeks)** | Pro-rata quota reduction for the affected quarter |
| **Territory reassignment** | Pipeline in Stage 3+ stays with originating AE; earlier pipeline transfers |
| **Termination (voluntary)** | Commissions paid on deals closed before last day; holdbacks continue per normal schedule |
| **Termination (involuntary)** | Commissions paid on deals booked before termination date; holdbacks forfeited |

---

## 7. Rep-Facing FAQ Document

### Compensation Basics

**Q: What is my OTE and how is it structured?**
A: Your On-Target Earnings are $120,000/year, split into a $66,000 base salary (55%) and $54,000 in variable compensation (45%). You earn the full variable component by hitting 100% of your quota.

**Q: What is my quota?**
A: Your annual quota is $275,000 in net-new ACV. Post-ramp, this breaks down to $68,750 per quarter. During your 3-month ramp, you have reduced monthly targets (25%, 50%, 75% of the full monthly rate).

**Q: How many deals do I need to close to hit quota?**
A: At our average ACV of $15,000, you need approximately 18–19 deals per year, or roughly 4–5 deals per quarter. That is about 1.5 deals per month at steady state.

### Commissions and Pay

**Q: How is my commission calculated?**
A: You earn 10% of the ACV on every deal you close. For a standard $15,000 deal, that is $1,500 in commission. If you exceed 100% of your quarterly quota, the rate increases to 15% on every dollar above quota (the accelerator).

**Q: When do I get paid?**
A: 80% of your commission is paid in the next payroll cycle after the deal is booked. The remaining 20% is held for 90 days and released once the customer is confirmed active and paying.

**Q: What happens to my holdback if a customer churns?**
A: If a customer cancels within the first 90 days, the 20% holdback for that deal is forfeited. The 80% you already received is yours to keep — we do not claw back money already paid.

**Q: Is there a cap on how much I can earn?**
A: Total annual variable compensation is capped at 3x your on-target variable ($162,000). This means your theoretical max total comp is $228,000 ($66k base + $162k variable). This cap will be revisited as the company grows.

### Ramp Period

**Q: How does the ramp work?**
A: During your first 3 months, your quota is reduced: 25% in Month 1, 50% in Month 2, and 75% in Month 3. You earn the same commission rate on all deals — the ramp just makes it easier to hit (and exceed) your target. Starting Month 4, you are on full quota.

**Q: What if I close a big deal in Month 1?**
A: Great — you earn full commission on it. If it puts you over your reduced Month 1 quota, you earn the accelerator rate (15%) on the overage. Ramp is about setting achievable targets, not reducing your pay.

**Q: What happens during ramp if I close nothing?**
A: You still receive your full base salary ($66,000/year). There is no penalty for missing quota during ramp beyond not earning variable compensation. Use the ramp to learn the product, shadow the founder on calls, and build pipeline.

### Accelerators

**Q: How does the accelerator work exactly?**
A: Once you hit 100% of your quarterly quota ($68,750), every additional dollar of ACV booked earns commission at 15% instead of 10%. If you reach 150% of quota, the rate increases to 18% on everything above 150%.

**Q: Is the accelerator retroactive?**
A: No. The accelerator applies only to incremental dollars above the threshold. Your first $68,750 in a quarter always earns at 10%.

**Q: Can I "bank" a deal from one quarter to another?**
A: No. Deals are credited in the quarter they are booked (signed contract). You cannot hold a deal to get a better rate in the next quarter. Any attempt to manipulate booking timing is a policy violation.

### Retention and Churn

**Q: Why is there a holdback?**
A: We have seen some early customer churn that we believe is partially driven by deals being rushed or misaligned. The holdback ensures that we all benefit from closing the right customers, not just any customers. It aligns your incentive with long-term revenue, not just bookings.

**Q: What if a customer churns and it is not my fault?**
A: If you believe the churn was caused by a product issue, onboarding failure, or other factor outside your control, you can submit a written appeal to the CEO within 10 business days. Legitimate cases will be reviewed fairly. We are not trying to penalize you for things beyond your control.

**Q: What counts as "churn" for holdback purposes?**
A: A customer is considered churned if they cancel their contract, request a refund, or stop paying within 90 calendar days of the contract start date. A downsize (reduced ACV) triggers a partial adjustment, not full forfeiture.

### Deals and Pipeline

**Q: How are leads assigned?**
A: During the early months, the founder will hand off existing pipeline and inbound leads. As we build out lead gen, we will implement a round-robin or territory model. For now, lead assignment is at the CEO's discretion, with a goal of equitable distribution.

**Q: What if I source my own deal through outbound?**
A: You get full credit. Self-sourced deals are treated the same as any other deal — full commission, full quota credit.

**Q: Do expansion deals count toward my quota?**
A: Yes, if you source and close the upsell within 12 months of the original deal. You earn 10% commission on the incremental ACV and it counts toward quota. If CS sources the upsell, you get 5% but it does not count toward quota.

**Q: What if I want to offer a discount?**
A: You can offer up to 10% off list price at your discretion. Discounts of 11%–20% require CEO approval. Anything above 20% requires CEO approval plus written justification, and your commission rate is cut in half on that deal. Negotiate wisely.

### Admin and Logistics

**Q: When does my plan start?**
A: Your plan starts on your first day of employment. The ramp begins on Day 1.

**Q: Can this plan change?**
A: This plan is guaranteed for the first 6 months of employment. After that, we reserve the right to adjust quota, rates, or structure with 30 days written notice. Any deal already in pipeline at the time of a plan change will be honored under the original plan terms.

**Q: What happens if I leave the company?**
A: If you resign, you receive commissions on all deals booked before your last day. Holdbacks continue on their normal 90-day schedule and are paid out if the customer remains active. If you are terminated involuntarily, commissions are paid on booked deals but holdbacks are forfeited.

**Q: Who do I talk to if I have a question about my comp?**
A: Your first point of contact is the CEO. As we grow, we will build out a Sales Ops or RevOps function to handle comp administration. All comp disputes should be raised within 10 business days of the relevant pay period.

---

## 8. Appendix: Definitions and Glossary

| Term | Definition |
|---|---|
| **ACV (Annual Contract Value)** | The annualized value of a customer contract. For monthly contracts, ACV = MRR x 12. |
| **ARR (Annual Recurring Revenue)** | Total annualized recurring revenue from all active customers. |
| **Booking** | A signed customer contract that has been validated and entered into the system of record. |
| **Churn** | A customer cancellation, non-renewal, or cessation of payment. |
| **Commission** | Variable compensation earned as a percentage of ACV booked. |
| **Holdback** | A portion of commission (20%) withheld pending 90-day customer retention. |
| **Net-New ACV** | ACV from brand-new customers (not renewals or expansions of existing customers). |
| **OTE (On-Target Earnings)** | Total expected annual compensation (base + variable) at 100% quota attainment. |
| **OTV (On-Target Variable)** | The variable (commission) portion of OTE, earned at 100% quota attainment. |
| **Quota** | The ACV target an AE is expected to close in a given period. |
| **Ramp** | A period of reduced quota targets for newly hired AEs (3 months in this plan). |
| **SPIF** | Sales Performance Incentive Fund — a time-limited bonus for specific behaviors. |
| **Accelerator** | An increased commission rate applied to ACV booked above 100% of quota. |

---

## Document Control

| Version | Date | Author | Changes |
|---|---|---|---|
| 1.0 | 2026-03-17 | [CEO Name] | Initial plan for first two AE hires |

---

*This document constitutes the complete Sales Compensation Plan for the roles specified above. It supersedes any prior verbal or written agreements regarding compensation. By signing below, the AE acknowledges receipt and understanding of the plan terms.*

**Account Executive Signature:** _____________________________ **Date:** __________

**CEO Signature:** _____________________________ **Date:** __________