Bonuses, commissions and sales compensation plans

1. The core idea#

At most seed-stage companies, variable cash pay is a small part of the package. Equity does the long-term work, and salary does the rest. Variable pay earns its place in two situations: when one person's effort clearly moves a number the company cares about (most obviously, a salesperson closing revenue), and when you need a short, specific behaviour (stay through an acquisition, hit a launch date).

The common failure is copying a software-company sales plan into a deeptech company. A SaaS account executive closes many small deals a year against a quota of four to five times their on-target earnings. A deeptech seller might close two or three deals in a year, each after a paid pilot, a technical evaluation and a procurement process that the seller only partly controls. The standard plan pays them nothing for most of the year and then too much in one quarter.

Who this is for: a founder hiring a first salesperson or business-development lead, or considering a bonus plan for the team, in India, the US or the UK.

The principles this playbook works from:

• Pay variable cash only for things the person controls. Company-wide milestones are better rewarded with equity.
• For long, lumpy sales cycles, use more base and pay for milestones, not just signed contracts: a qualified pilot, a pilot converted to a commercial order, cash collected.
• Pay commission on cash collected, or claw it back if the customer does not pay. This matters especially in Indian B2B, where payment terms are long (12.16).
• Keep plans simple enough to explain in one page, and write them down. In several US states a written commission plan is a legal requirement.
• Budget variable pay as a cost of revenue. Sales compensation as a share of the revenue it brings in is the number that tells you if the plan works.

Related: 5.13 (salary benchmarks), 5.12 (cash vs equity), 6.10 (hiring a VP Sales), 12.08 (structuring paid pilots), 12.16 (working capital and receivables).

2. What the data says (November 2026)#

Almost all published sales-compensation data comes from US software companies. Use it to understand the vocabulary and the ratios, then adjust for a deeptech sales cycle.

US B2B account executives#

The Bridge Group's 2026 report (158 B2B companies, June 2026) is the most widely cited source:

Other benchmarks point the same way:

• Pay mix: 50/50 base to variable is the most common split for account executives; enterprise roles with long cycles often move to 60/40 base-heavy; SDRs are typically 70/30; sales engineers and managers are more base-heavy still.
• Quota multiples: 3x–5x OTE is the usual range for B2B roles, with enterprise at the higher end.
• Commission rate: variable target divided by quota, typically about 10–12% of bookings at 100% attainment in SaaS.
• Attainment is low. Fewer than half of reps hit quota in most 2026 datasets, so a rep's actual pay is usually well below the advertised OTE.

India#

Published Indian data is thinner and mostly from salary guides. They describe sales roles with 50–70% fixed pay and 30–50% variable, with 60/40 a common B2B split, and variable shares of about 20–40% of CTC for sales roles, compared with 10–20% for other individual contributors. One rule of thumb in Indian B2B guides is a CTC of about 10% of

the annual sales target (a ₹3 crore target with a ₹30 lakh CTC), which is roughly a 10x quota-to-CTC ratio, much higher than US norms because Indian salaries are lower relative to deal sizes.

Non-sales variable pay#

Ravio's 2026 UK data shows median variable pay of 11.5% of base at early-stage startups (pre-seed and seed), with a 25th percentile of 8.3% and a long upper tail. Most of that comes from a minority of roles, often sales and leadership. Many seed-stage companies pay no bonus at all to engineers and scientists and rely on equity instead.

What this means for a deeptech company#

• The SaaS template does not fit. A deeptech seller may close two or three contracts a year after long pilots. With a 4.6x quota and 50/50 split, most of their variable pay arrives in one or two lumps, and the timing depends heavily on the customer's procurement process.
• Expect longer ramps. If software companies average more than six months to ramp, a deeptech seller selling to a utility, a pharma company or a defence buyer will take longer. Build that into the plan.
• Base-heavier mixes are normal for long, technical sales. 60/40 or 70/30 with milestone payments is a better starting point than 50/50.

3. How to do it#

Part A: a first sales compensation plan#

Step 1. Set the on-target earnings (OTE). Benchmark the role and city (5.13), then decide your percentile. For a first seller in a deeptech company you will usually need someone senior with technical credibility, so expect to pay near the median or above in cash, plus a meaningful equity grant (5.04).

Step 2. Choose the pay mix by sales cycle.

Step 3. Pay for milestones the seller controls. For long cycles, split the variable target across stages, for example: a paid pilot signed; a pilot converted to a commercial contract; first payment received. Define each stage precisely (minimum pilot value, what counts as a commercial contract).

Step 4. Set the quota from your plan, not from a benchmark. Start with what the company's plan needs this person to bring in, check it against what one person can realistically handle, then check the quota-to-OTE ratio. For deeptech, 3x–6x is a reasonable range; if the plan needs more, you need more sellers or a longer horizon.

Step 5. Protect both sides.

• Ramp: pay a non-recoverable draw (for example 50% of target variable) for the first six months while pipeline builds.

• Payment timing: pay part of each commission at signature and the rest when the customer pays. In Indian B2B, with 60–120 day payment terms, this matters (12.16).

• Clawback: recover commission (from future commissions) if a contract is cancelled within a set period or never paid.

• Windfall clause: state in advance how a single very large deal will be treated (for example, accelerators stop at 2x target, and the CEO decides above that). Decide this before the deal, not after.
• Accelerators: a higher rate above 100% (often 1.25x–2x the base rate) rewards overperformance.

Step 6. Write it down in one page and get it signed. Include the plan period, the measures, rates, payment timing, clawback, what happens if the person leaves, and the company's right to change the plan for the next period. Several US states require a signed written commission agreement (section 4).

Step 7. Check the cost ratio. Divide the seller's total cost by the new revenue they are expected to bring. If it is far above what your gross margin can carry, the plan or the hire is wrong.

Part B: bonuses for everyone else#

• Default at seed: no formal bonus plan. Equity and salary carry the package. A bonus that is paid every year becomes salary in people's minds.
• If you want one, make it a company bonus, the same percentage of base for everyone (for example 5–10%), paid once a year against two or three company milestones everyone can see: a pilot delivered, a grant won, a round closed.
• Spot bonuses: a small budget (for example around 1% of payroll) for exceptional effort, paid quickly with a clear reason.
• Retention bonuses: for specific situations such as an acquisition or a critical project, paid in instalments with a clear end date.

Worked example#

An industrial sensing startup sells monitoring systems to utilities. Sales cycles run 12–18 months, starting with a paid pilot. It hires its first account executive in the US and a business-development lead in Bengaluru.

US account executive: OTE $220,000, mix 65/35 (base $143,000, variable $77,000). Annual targets: four paid pilots and $1.2 million of first-year commercial contract value (5.5x OTE).

At target, the AE's total cost is about $220,000 plus benefits against $1.2 million of contract value and $200,000 of pilot revenue.

Bengaluru business-development lead: CTC ₹40 lakh, mix 70/30 (fixed ₹28 lakh, variable ₹12 lakh). Variable is paid quarterly: 40% on qualified pilot opportunities handed to the AE or closed in India, 60% on contract value collected in the quarter, because Indian customers in this sector typically pay 90–120 days after invoice.

Everyone else: no individual bonus. A company bonus of 7% of base, paid in April, if the company converts two pilots and closes its Series A in the year.

4. Country notes#

India#

• Statutory bonus now sits in the Code on Wages, 2019. The Payment of Bonus Act, 1965 was repealed with effect from 21 November 2025. Chapter IV of the Code (sections 26 onwards) applies to establishments with 20 or more employees. Notifications dated 25 August 2026, effective retrospectively from 21 November 2025, kept the eligibility ceiling at ₹21,000 a month in wages and the calculation ceiling at ₹7,000 a month (or the minimum wage, if higher) for central-sphere establishments; states issue their own notifications. The bonus is 8.33% to 20% of the capped wage. For most engineers and scientists this does not apply, because their wages are above the ceiling; it can apply to lab technicians, operators and support staff (6.19). New establishments have relief in their first years, linked to whether they make a profit; check the current rules with your payroll provider.
• Variable pay and the 50% wages rule. The Labour Codes' definition of wages (5.13) excludes some components, but exclusions above half of total pay are added back for PF, gratuity and other calculations. Check how commissions and bonuses are treated in your salary structure with your payroll adviser.
• Be honest about "variable" in CTC. Candidates compare fixed pay and in-hand pay. Quoting a CTC that includes a variable component which is rarely paid damages trust; show fixed and target variable separately in the offer (5.11).
• Tax: commissions and bonuses are salary income, with TDS deducted in the month of payment.

United States#

• Written commission agreements are required in several states. California (Labor Code section 2751) requires a written contract setting out how commissions are computed and paid, with a signed copy given to the employee. New York (Labor Law section 191) requires a written commission agreement for commissioned salespeople. Other states, including Massachusetts, treat earned commissions as wages, with strict rules on paying them on time and when someone leaves.
• Define "earned" carefully. State law usually follows the plan's definition of when a commission is earned. If the plan says it is earned on customer payment, write that clearly; otherwise it may be treated as earned at signature and payable even after the person leaves.
• Withholding: bonuses and commissions are supplemental wages. Employers can withhold federal income tax at a flat 22% (37% above $1 million in a year), plus FICA.

United Kingdom#

• Holiday pay must include commission. For leave years starting on or after 1 April 2024, regular commission must be included in holiday pay for the four weeks of statutory leave derived from EU law, following earlier case law. Build this into payroll.
• Contractual or discretionary. A bonus described as discretionary must still be decided rationally and in good faith; a contractual bonus must be paid if its conditions are met. Say clearly which kind it is.
• Tax: bonuses and commissions are taxed through PAYE with employee and employer National Insurance (employer NIC 15% above the threshold).

Sellers in other countries#

If your first seller is abroad and hired through an employer of record (6.17), the EOR's local contract will set rules on commission payment and termination. Check that your plan document fits the local contract.

5. Scripts, mistakes and sources#

Scripts#

Explaining a base-heavy plan to an experienced seller

"Our sales cycle is 12 to 18 months and starts with a paid pilot, so a 50/50 plan would leave you with almost no variable pay for most of the year. We've set it at 65/35, and we pay you at each stage: when a pilot is signed, and when it converts to a commercial contract. For the first six months half your variable is guaranteed while you build pipeline."

Explaining payment on collection (India)

"We pay commission when the customer pays, not when the order is signed. Our customers usually take 90 to 120 days to pay, and we can't afford to pay commission on cash we haven't received. In exchange, there's no cap on what you can earn."

Telling the team there's no individual bonus

"At our stage, we'd rather put the money into equity for everyone and salaries at a fair level than run individual bonuses. If we hit the two company milestones this year, everyone gets the same 7% of base in April."

Handling a windfall deal

"As the plan says, accelerators stop at 200% of target, and anything above that is my decision. Here's what I've decided and why."

Common mistakes#

1. Copying a SaaS plan. A 50/50 mix and 4.6x quota fit short cycles, not 18-month industrial sales.
2. Paying only on signed contracts. Long cycles then mean long stretches of no variable pay, and good sellers leave.
3. Paying on bookings when customers pay late. You fund commission out of cash you haven't collected.
4. No written plan, or one that is vague about when commission is earned. This creates disputes and, in some US states, legal exposure.
5. No windfall or cap rule agreed in advance. Changing the rules after a big deal destroys trust.
6. Individual bonuses for engineers and scientists at seed. Hard to measure fairly, and they quickly become expected.
7. Forgetting statutory bonus for technicians in India, or commission in UK holiday pay.

Related playbooks#

• 5.12 Trading off cash and equity in offers
• 5.13 Salary benchmarks for startups in India and the US
• 5.11 Explaining equity to employees: offer letters
• 6.10 When to hire a VP Engineering, VP Sales or CFO
• 6.17 Hiring abroad and using employers of record (EORs)
• 6.19 Hiring lab, manufacturing and technician staff
• 12.08 Structuring paid pilots
• 12.16 Working capital and receivables in Indian B2B

Sources#

• The Bridge Group, AE Models, Motions & Metrics: 2026 Research Report (10th edition, June 2026)
• Optymyze, Sales Cookie, Fullcast and Apollo sales compensation benchmark summaries (2025–2026)
• Ravio, Startup salaries and Compensation Trends 2027 (variable pay by stage, UK)
• India sales pay guides: Wisemonk (variable pay in India), ResumeVera (sales salary guide 2026)
• Code on Wages, 2019, Chapter IV; Ministry of Labour notifications S.O. 4710(E) and 4711(E) of 25 August 2026, as summarised by Khaitan & Co, Mondaq and SCC Online
• California Labor Code section 2751; New York Labor Law section 191; IRS Publication 15 (supplemental wage withholding)

This playbook is general information, not legal, tax or employment advice. Commission and bonus rules vary by state and country; have your plan document reviewed before you use it.