Designing a sales commission structure can sound simple, set a sales target, decide on a commission percentage and pay more when the salesperson sells more.

In practice, poorly designed commission plans can create some of the most frustrating remuneration problems in an organisation.

Targets may be unrealistic.

Salespeople may not understand how their commission is calculated.

Two employees doing similar jobs may be operating under completely different legacy plans.

High performers may reach a commission cap and then have little incentive to sell more.

Salespeople may be rewarded for revenue that produces very little margin.

And sometimes a business discovers that its commission plan rewards exactly the behaviour it is trying to stop.

In 2026, Australian employers should therefore think about sales commission as a remuneration design exercise, not simply a percentage attached to revenue.

A good commission structure answers five questions clearly:

What are we paying the employee to achieve?

How much should they earn if they achieve the target?

What happens if they fall below target?

What happens if they significantly exceed target?

Can the employee calculate their own commission without asking Finance?

If those questions are difficult to answer, the plan is probably too complicated.

Start with OTE

One of the easiest ways to design a sales remuneration structure is to start with on-target earnings, or OTE.

OTE is generally:

Base salary + target incentive

For example:

If the employee achieves 100% of their annual sales target, they should earn approximately $200,000 before considering any above-target accelerators or other payments.

OTE makes it much easier to compare different sales roles because base salary alone does not tell you very much.

An Account Executive with a $120,000 base and $80,000 commission opportunity has a very different remuneration proposition from someone earning a $150,000 base with only a $20,000 annual incentive.

Current Australian sales-market commentary continues to describe OTE and commission as central components of sales remuneration, particularly for business development and Account Executive positions.

What base and commission split should you use?

There is no universal Australian commission split.

The right structure depends on how much influence the employee has over the sale.

A useful starting framework is:

These are design examples rather than mandatory market ratios.

The principle is more important than the exact percentage.

The more directly an employee controls the sales outcome, the greater the proportion of remuneration that can reasonably be at risk.

If an employee has very little control over pricing, territory, lead generation, product availability or closing the transaction, a highly variable remuneration package can become unfair and ineffective.

Example: a simple Australian sales commission plan

Suppose an Account Executive has:

Base salary: $120,000

Target incentive: $80,000

OTE: $200,000

Annual sales target: $1,000,000

At 100% achievement, the employee earns their $80,000 target commission.

The implied commission rate is:

$80,000 ÷ $1,000,000 = 8%

The simplest possible structure would therefore pay:

8% of eligible sales revenue.

If the employee sells $900,000:

Commission = $72,000

If the employee sells $1,000,000:

Commission = $80,000

If the employee sells $1,100,000:

Commission = $88,000

That structure is extremely easy to understand.

But many organisations want stronger incentives for employees who exceed target.

That is where accelerators become useful.

Using accelerators

An accelerator increases the commission rate once a salesperson exceeds a particular level of performance.

For example:

The employee therefore receives greater reward for revenue generated after reaching target.

Suppose the employee sells $1.2 million.

The first $1 million produces:

$1,000,000 × 8% = $80,000

The next $200,000 produces:

$200,000 × 12% = $24,000

Total commission:

$104,000

The accelerator gives a salesperson a reason to continue selling once their target has been achieved.

This is usually preferable to a plan where the employee reaches 100% of target and receives very little additional reward for further performance.

Be careful with commission caps

A commission cap means that once an employee reaches a certain incentive amount, they cannot earn more regardless of how much additional business they generate.

For example:

Maximum annual commission: $120,000

The problem becomes obvious if the salesperson reaches the cap in October.

What financial incentive do they have to close a large transaction in November rather than delay it until the next commission period?

Commission caps can sometimes make sense where there is significant uncertainty, windfall business or limited employee influence over sales.

But for genuine new-business roles, employers should consider carefully whether a cap supports the behaviour they want.

Uncapped commissions and accelerators remain common features of Australian sales remuneration discussions in 2026, particularly in higher-value sales roles.

Revenue commission or gross-profit commission?

Another important decision is what the organisation actually wants to reward.

Consider a salesperson who sells:

Deal A: $500,000 revenue at 40% margin

Deal B: $700,000 revenue at 8% margin

If commission is based purely on revenue, Deal B produces a greater reward.

But the business might strongly prefer Deal A.

This is why some organisations use gross profit or contribution margin rather than revenue.

For example:

Commission = 10% of gross profit

If a deal produces:

Revenue: $500,000

Gross profit: $200,000

Commission would be:

$200,000 × 10% = $20,000

Margin-based plans are particularly useful where salespeople have meaningful influence over discounts.

Otherwise, a revenue-only plan can encourage employees to discount heavily simply to close deals.

New business and existing business should not always pay the same

Another common design mistake is paying identical commission for revenue that requires completely different levels of effort.

For example:

New customer revenue: 10%

Expansion revenue: 6%

Renewal revenue: 2%

That can make sense where winning a completely new customer requires significantly more effort than renewing an existing contract.

Alternatively, an Account Manager responsible primarily for retention might have a structure weighted toward:

• renewal rate;
• customer retention;
• expansion revenue; and
• account profitability.

The commission structure should reflect what the employee can genuinely influence.

Should commission start from the first dollar?

There are several approaches.

Approach 1: Commission from the first dollar

The employee earns commission immediately.

Example:

8% of all eligible sales

This is simple and motivating.

Approach 2: Threshold before commission starts

For example:

No commission below 50% of target.

Commission begins once the employee reaches the threshold.

This can protect the business from making substantial incentive payments for weak performance.

But thresholds can also create problems.

If employees believe there is little chance of reaching the threshold, the entire incentive can lose motivational value.

Approach 3: Reduced rate below target

A more balanced approach might be:

The employee still receives something for producing revenue, while strong performance receives significantly greater reward.

Set targets employees can actually achieve

Commission design and target setting cannot be separated.

An apparently generous OTE becomes meaningless if almost nobody can achieve the required target.

Suppose a company advertises:

Base: $120,000

OTE: $240,000

That sounds extremely attractive.

But if the employee needs to sell $4 million and no salesperson has ever generated more than $2 million, the $240,000 OTE may not represent a realistic remuneration opportunity.

When setting targets, examine:

• historical performance;
• average deal size;
• sales-cycle duration;
• conversion rates;
• available territories;
• customer pipeline;
• market growth;
• salesperson ramp-up time;
• lead quality;
• product maturity; and
• expected selling capacity.

A useful test is to look at what percentage of competent, fully ramped salespeople are realistically expected to achieve target.

If practically nobody can reach 100%, the issue may be the target rather than the sales team.

Avoid changing targets halfway through the year

Few things damage confidence in a commission plan faster than moving the target after employees begin performing against it.

For example:

A salesperson is given a $1 million target.

Six months later, after they have already generated $650,000, management decides the target was too easy and changes it to $1.5 million.

Even if the employment documentation permits changes, this can seriously undermine the credibility of the incentive plan.

Targets should ideally be set before the performance period begins.

If business conditions change dramatically, any adjustment should be clearly documented and communicated.

Define exactly when commission is earned

This needs to be written down.

Does the employee earn commission when:

The contract is signed?

The customer is invoiced?

The customer pays?

The product is delivered?

Implementation is completed?

Different businesses will reasonably choose different points.

What matters is clarity.

For example:

Commission is earned once the customer contract has been executed and the first customer invoice has been paid.

This becomes particularly important when an employee leaves the organisation while deals remain in progress.

Deal with cancellations and bad debts in advance

Suppose the employee receives commission on a $200,000 sale.

Three months later, the customer cancels and receives a full refund.

What happens to the commission?

The plan should say.

A clawback provision might state that commission can be reversed where:

• a transaction is cancelled;
• payment is refunded;
• revenue is never collected;
• the sale is fraudulent;
• the salesperson materially misrepresented the product; or
• specified contractual conditions are not satisfied.

But clawbacks should be designed carefully.

Employees should not carry risks completely outside their control simply because the organisation wants to transfer commercial risk to the sales team.

Consider split commissions

Large sales often involve several employees.

For example:

An Account Executive sources the opportunity.

A Sales Engineer runs technical demonstrations.

A Business Development Manager develops the relationship.

An Account Manager expands the contract.

Without clear rules, everyone may claim the same transaction.

A commission plan should explain whether credit is:

100% to one salesperson

or

split between contributors.

For example:

Primary Account Executive: 70% sales credit

Supporting Account Executive: 30% sales credit

The rules should be determined before disputes arise.

Sales managers require a different structure

Sales managers are normally responsible for team performance rather than only their personal sales.

A possible structure could be:

Base salary: $180,000

Target incentive: $70,000

OTE: $250,000

The $70,000 incentive might then be based on:

This avoids encouraging a sales manager to compete against their own team for individual deals.

For senior sales leaders, a broader annual incentive structure may be more appropriate than a transaction-by-transaction commission plan.

Keep the number of measures under control

A commission plan containing seven performance measures may look sophisticated.

It usually creates confusion.

For most front-line salespeople, one or two primary measures are enough.

For example:

80% revenue

20% gross margin

Or simply:

100% new annual recurring revenue

The employee should know what to focus on.

If the company has ten strategic priorities, they do not all need to appear in the sales commission plan.

A practical 2026 structure

For an Australian B2B salesperson, a practical starting design might look like this:

The actual dollar amounts need to be benchmarked for the particular industry, geography and sales role.

The structure, however, is easy to explain and administer.

Ramp-up periods are particularly important

A salesperson starting on 1 July is unlikely to have the same opportunity to generate sales as someone who has managed the territory for three years.

This becomes even more important in businesses with long sales cycles.

A company might use:

Quarter 1: 50% target

Quarter 2: 75% target

Quarter 3 onwards: 100% target

Alternatively, the company may provide a temporary guaranteed incentive while the salesperson builds their pipeline.

Whatever method is chosen, new employees should understand their ramp arrangements before joining.

Do not ignore Australian minimum-pay requirements

Commission does not remove an employer's obligation to comply with applicable minimum employment conditions.

The Fair Work Ombudsman states that commission can be paid as an additional incentive, while commission-only arrangements are permitted where the relevant award or enterprise agreement allows them. Award-free employees paid commission must still receive at least the applicable National Minimum Wage.

From the first full pay period on or after 1 July 2026, the National Minimum Wage is $1,004.90 per week or $26.44 per hour, and minimum award wages increased by 4.75%.

Employers therefore need to establish the employee's award or agreement coverage and applicable minimum entitlements before relying on a commission structure.

This is particularly important for commission-only arrangements.

Write the rules down

A good sales commission document should tell an employee:

• their target;
• their target incentive;
• what counts as a sale;
• which customers or territories they own;
• how commission is calculated;
• when commission is earned;
• when commission is paid;
• how accelerators operate;
• whether there is a cap;
• how split deals work;
• how cancellations are treated;
• what happens during leave;
• how new starters are treated;
• how leavers are treated; and
• who resolves disputes.

Ideally, an employee should be able to take their sales results and calculate approximately what they will be paid.

If the calculation requires an unexplained spreadsheet controlled by Finance, the plan is unnecessarily opaque.

Five common commission mistakes

1. Designing the plan around what the business paid last year

Start with what behaviour you want to reward, not the existing spreadsheet.

2. Setting OTE without testing the target

A $250,000 OTE is meaningless if a competent employee has almost no realistic opportunity to achieve it.

3. Rewarding revenue while ignoring margin

If employees control discounting, consider whether revenue alone is the right performance measure.

4. Using too many performance measures

Complexity weakens the connection between selling behaviour and reward.

5. Creating vague accelerator rules

Employees should know exactly what happens at 100%, 110%, 120% and 150% of target.

Test the plan before launching it

Before introducing a commission structure, calculate what happens in several scenarios.

For example:

Then ask:

Does the remuneration at 50% performance feel reasonable?

Is 100% performance rewarded appropriately?

Does the payout at 150% still make commercial sense?

Would the organisation be pleased to make the payment if somebody achieved it?

That final question is important.

If management would be horrified to pay the commission generated by exceptional performance, the plan has not been properly modelled.

The simplest rule for commission design

A strong sales commission structure creates a clear relationship:

More valuable performance = meaningfully higher remuneration.

The employee should understand that relationship.

Management should understand it.

Payroll should be able to calculate it.

And Finance should have modelled what happens when employees dramatically outperform expectations.

For Australian employers in 2026, the best sales commission plan is therefore not necessarily the plan with the highest percentage, the largest OTE or the most elaborate formula.

It is the plan where:

targets are credible,

the performance measure reflects commercial value,

the calculation is transparent,

strong performance produces genuine upside,

the organisation can afford the outcome,

and

the structure operates consistently with Australian workplace requirements.

When those elements are in place, sales commission stops being an annual source of argument and starts doing what it was designed to do: direct sales effort toward the commercial results that matter most.