Mastering Sales Commission Plans with QuotaPath's Ryan Milligan
Marrying your financial model, pyshcology and behavioural economics
Your commission plan might be silently sabotaging your business.
After spending years helping hundreds of companies design their sales compensation strategies, Ryan Milligan, VP of Sales, Marketing, and RevOps at QuotaPath has discovered that most organizations are unknowingly incentivizing behaviors that harm their long-term success. The problem? Most leaders approach comp planning as a simple mathematical equation rather than what it really is; a powerful psychological tool that shapes rep behavior.
I sat down with Ryan, who brings a unique perspective to sales leadership, having transitioned from data science to marketing, then RevOps, and finally to revenue leadership. This unconventional path gives him uncommon insight into a topic that determines both company performance and individual livelihoods.
Here are Ryan’s five key to building a great variable compensation plan:
1. Commission Plans Should Pass "The Grandma Test"
The most effective commission plans aren't necessarily the most sophisticated; they're the most understandable. Ryan's first principle of great compensation design is what he calls "The Grandma Test."
"A rep should be able to go to their grandma and say, 'Hey, these are the ways in which I earn variable compensation' in two sentences, three max," Ryan explains.
This simplicity isn't just about clarity, it's about psychological alignment. When reps fully understand their compensation structure, they can make decisions without constantly cross-referencing their comp plan with each proposal. Complex plans create decision paralysis that slows deals and frustrates everyone involved.
According to behavioral economics, cognitive overload occurs when we force people to track too many variables simultaneously. As Nobel laureate and author of Thinking Fast and Slow (video), Daniel Kahneman demonstrated in his research on decision-making, humans have limited cognitive bandwidth and adding too many elements to a commission plan doesn't just confuse reps; it actively prevents them from optimizing their behavior.
Ryan suggests limit your plan to 2-3 key "toppings" (accelerators or modifiers) beyond base commission. As Ryan puts it, "It's like the pizza topping rule. You never want more than two to three toppings on a pizza."
2. Your Commission Plan Reveals What "Great" Looks Like
Most leaders miss a fundamental truth: your compensation plan isn't just how you pay people. It's how you communicate what excellence means in your organization.
"The comp plan is supposed to tell a seller what great looks like and the parameters of the deal that are great," Ryan explains. "If you don't tell the rep what great looks like and they have a $250K quarterly quota, there are a thousand different ways they could get there."
This insight connects to what psychologists call "goal alignment theory,” which is the principle that humans perform better when their individual goals align with organizational objectives. When your commission plan clearly signals what matters most, you create powerful psychological alignment that drives the right actions.
This perspective shifts compensation planning from a financial transaction to a strategic communication tool that answers the question: "What does this business have to do to be successful this year?"
Ryan came back to this point a few times and stressed that before designing your plan, leaders should clearly identify the one metric your business must move this year. Is it gross revenue retention? Multi-year contracts? Enterprise deals? Make this the centerpiece of your commission structure.
3. Use Extreme Incentives to drive Behavioral Change
One of the most counterintuitive insights Ryan shared is the approach he calls "extreme incentives" to drive temporary behavioral change.
When QuotaPath wanted to increase multi-year contracts, rather than adding a modest 2% bonus (the standard approach), they temporarily doubled the commission rate on two-year deals for a single quarter. The results were dramatic: "The quarter before, 15% of our revenue was two-year contracts. That quarter, 85% of our revenue was two-year contracts."
This approach leverages several psychological principles. First is the concept of "hyperbolic discounting," which is our tendency to dramatically overvalue immediate rewards compared to future benefits. By making the incentive extraordinary but time-limited, it created urgency that overcame established patterns.
Second, it established a new norm. Once reps learned how to sell multi-year deals successfully, they incorporated this skill into their regular practice, allowing QuotaPath to gradually reduce the incentive while maintaining the new behavior.
Ryan suggests instead of spreading modest incentives across multiple behaviors, identify one critical behavior change and create a significant, time-bound incentive to drive that change. Make it clear this is temporary, then gradually normalize the behavior with reduced incentives. This was a big ah-hah moment for me in the podcast and something that I’m taking into future compensation planning.
4. Always Test Your Numbers with Bottom-Up Activity Modeling
A surprisingly common mistake in commission design is setting quotas without testing their mathematical feasibility. This creates a disconnect between expectations and reality that breeds frustration and turnover. We’ve all been there. 😅
"I like to do a true bottoms-up activity model," Ryan explains. "If a seller in a given month needs four meetings to close a deal, and each deal takes eight working hours including prep time, how many deals would they need at the average contract value to hit their plan? And do they have enough calendar hour availability?" I had this exact conversation with a founder over the weekend, in fact.
This approach connects to what psychologists call "perceived behavioral control," which is the belief that one has the capability and resources to achieve a goal. When quotas seem mathematically impossible, reps experience learned helplessness, a psychologically damaging state where they stop believing their actions can lead to success.
Before finalizing quotas, map out the actual activities required to hit the target. Calculate the meetings needed, conversion rates, non-selling activities that you expect and calendar capacity. Do your reps have a reasonable path to their number and yours? This isn't just a mathematical exercise either. It's a psychological safety check that ensures reps feel goals are challenging but achievable.
5. Align Incentives Across the Organization
The most destructive commission plans create what Ryan calls "warring parties."
"The negative would be if your new business rep was comped on closed-won and your account team was comped on go-live, and the rep had no caring in the world or incentive," Ryan cautions. "The most toxic cultures I've come to help with comp plan design, I'll talk to the CMO, marketing's patting themselves on the back, they hit their pipeline number, they're super happy, and then sales is not even close."
This insight connects to game theory and the concept of the "prisoner's dilemma;" when individuals optimize for personal gain at the expense of collective outcomes, everyone ultimately loses. Effective commission structures create aligned incentives that drive collective success.
Ryan suggests reviewing your compensation plans across functions to ensure handoff points are incentivized on both sides. Marketing should have some component tied to closed revenue, sales should have elements connected to successful onboarding or retention, and customer success should share in the revenue outcomes they influence.
Additional Considerations
Ownership Balance
When designing a commission structure, the key stakeholders should form what Ryan calls "the triangle of influence": finance, sales, and RevOps. HR typically plays a smaller role than many assume, while including the opinions of your sales team during development can dramatically improve adoption and satisfaction.
Testing vs. Implementing
For significant changes to commission structure, consider running a test for a single quarter with a dedicated budget rather than making permanent changes immediately. This provides data on effectiveness while creating urgency around the incentive.
Trends to Watch
The rise of usage-based and outcomes-based pricing models is transforming commission structures. Many organizations are extending the new business rep's compensation horizon to include first-year adoption metrics, tying their success more directly to customer outcomes.
An emerging trend is "consistency bonuses"—rewards for consecutive quarters of quota achievement that encourage predictable performance but may inadvertently incentivize deal pushing.
Commission plans are more than financial structures. They're psychological frameworks that shape behavior across your organization. By approaching compensation design with both analytical rigor and psychological awareness, you can create plans that drive the right behaviors while building a culture of trust and achievement.
The simple truth? Most leaders never realize how their compensation plans are silently sabotaging their business goals. By applying these principles, you can transform your commission structure from a necessary evil into a strategic advantage that aligns your team's actions with your most important business outcomes.
Additional Resources
Books on Motivation Psychology: Daniel Pink's Drive, explaining intrinsic vs. extrinsic motivation; Richard Thaler's Nudge on choice architecture
Activity-Based Modeling: Hayes Davis's Substack offers excellent templates for bottom-up quota modeling
Team Alignment: Patrick Lencioni's Five Dysfunctions of a Team (Ryan's consistent recommendation)
Quota Calculators: Jeff Ignacio's quota calculator incorporating rep cycle time and expected attrition