A tiered commission structure pays different rates at different levels of quota attainment. Instead of one percentage applied to every closed dollar, the plan defines breakpoints, and the rate changes as a rep crosses each one. The purpose is to spend compensation dollars where they buy the most production, which is normally the stretch above target rather than the first predictable chunk of a territory.
Graduated tiers versus cliff tiers
The two designs behave very differently. A graduated tier applies the higher rate only to the dollars earned inside that tier, so crossing a breakpoint raises the marginal rate and leaves prior earnings alone. A cliff tier applies the new rate retroactively to every dollar from the start of the period, producing a payout jump at the breakpoint.
Cliffs feel motivating and create the worst behavior. A rep sitting 40,000 dollars below a cliff has a strong reason to discount hard, and a rep just above one has a strong reason to hold the next deal until the following period. Graduated tiers remove that edge because there is no single dollar worth an outsized payout.
Set the breakpoints from your own attainment distribution
Breakpoints belong where they change behavior, which means they should come from where reps actually finish rather than from round numbers. A tier that starts at 100 percent attainment does nothing for a team where most reps land between 70 and 90 percent, and it becomes an expensive payout for the few who were going to overperform regardless. Look at the last four to eight quarters of attainment by rep, find the range where a modest push would move someone into a higher band, and set the breakpoint there.
Segment matters as much as the number. Enterprise reps carrying a handful of large deals cross tiers in single jumps, so their tiers need wider spacing than a transactional team where attainment moves in small increments.
Watch the period boundary
Tiered plans concentrate risk at the end of the period, and that risk lands in the forecast before it lands in the payroll file. ORM finds that the strongest signal a deal is slipping is a rep changing the close date, and tier boundaries generate exactly that behavior in both directions. Reps short of a breakpoint pull deals forward with discounts that shrink deal size, while reps who have cleared their top tier park deals in the next period.
Both patterns are detectable. Track close date changes by rep against their position relative to a breakpoint, and compare discount rates in the final weeks of the period to the rest of it. If a plan reliably produces deal slippage around the same date every quarter, the tier design is generating it, and the fix is a plan change rather than more pipeline inspection. Clean tier design keeps forecast accuracy from degrading in the exact weeks it matters most.
Frequently Asked Questions
What is the difference between a graduated tier and a cliff tier?
A graduated tier pays the higher rate only on the dollars inside that tier, so a rep who crosses into a new tier earns the new rate on the incremental production. A cliff tier applies the higher rate retroactively to every dollar from the first one. Cliffs create a large payout jump at the breakpoint, which is exactly where reps start manipulating close dates.
Where should the tier breakpoints be set?
At the points in the attainment distribution where you want behavior to change. Set them from where your reps actually land historically, not at round percentages. A breakpoint at 100 percent that only three reps ever cross is a payout event for three people rather than an incentive for the team.
How many tiers should a plan have?
Two or three for most sales roles. Each additional tier adds calculation complexity and reduces the chance a rep can figure out what a given deal pays without opening a spreadsheet. A plan the rep cannot compute in their head does not change behavior in the moment.
Do tiered plans distort the forecast?
They can. When a rep is just short of a breakpoint late in a period, the incentive is to pull a deal forward with a discount. When a rep has already cleared the top tier, the incentive is to push deals into the next period. Both show up as close date changes, which is the strongest early signal that a deal is moving.
Put these metrics to work
ORM builds custom revenue forecast models that turn concepts like tiered commission structure into prescriptive action for your team.
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