Commission Caps Are Toxic. Here's The Data.
Every company that caps commissions is telling their top performers to stop selling. The math is brutal.
The Problem
I recently reviewed comp plans from 20 ANZ tech companies. 14 of them had commission caps.
This is insane.
The Math
Let's say your top AE is crushing it. They hit 150% of quota.
Without cap: They make 150% of their variable. They're motivated to keep pushing.
With cap at 120%: They made their max in Q3. What do they do in Q4? Sandbag deals for next year.
You've just incentivized your best performer to STOP SELLING.
The Real Cost
Assume that capped AE pushes $500K in deals to next year. At 80% gross margin, you just lost $400K in profit... to save $30K in commission.
Why Companies Do It
"But what if someone has a bluebird and makes $1M?"
Good! Pay them! You want that problem!
The Fix
Accelerators, not caps. Pay MORE as people exceed quota.
Your CFO might push back. Show them this math.