Cap and Threshold Guidelines
This policy establishes corporate guidelines for payout caps and performance thresholds in all sales incentive compensation plans, ensuring financial predictability and budget management, fairness and consistency across divisions, prevention of windfall payouts, and motivation for minimum performance standards.
1Purpose & Objectives
This policy establishes corporate guidelines for payout caps and performance thresholds in all sales incentive compensation plans, ensuring financial predictability and budget management, fairness and consistency across divisions, prevention of windfall payouts, and motivation for minimum performance standards.
- •Ensure financial predictability and budget management
- •Maintain fairness and consistency across divisions
- •Prevent windfall payouts
- •Establish motivation for minimum performance standards
2Scope
Applies To
- •All sales incentive compensation plans across all divisions unless explicitly exempted by the Compensation Review Board
3Definitions
Threshold
The minimum performance level required to earn any payout for a component or plan.
Cap (Maximum Payout)
The maximum incentive payout regardless of performance level achieved.
Leverage
Ratio calculated as (Base Salary + Maximum Possible Incentive) / Base Salary. Maximum leverage limit is 3.0x base salary.
Target Incentive (TI)
The expected incentive payment at 100% quota attainment, used as the basis for cap calculations.
Windfall
Unusually large payouts that may be reviewed even within cap limits, triggered when individual payout exceeds a threshold amount or exceeds 3x historical average.
4Key Provisions
Standard Threshold: 75% of quota. Performance below 75% of quota results in $0 payout. Performance at 75% of quota results in minimum payout (typically 50-75% pro-rata credit). Performance above 75% results in payout per plan curve.
Threshold Variations by Role
Recommended thresholds vary by role type:
- •Individual Contributors (IC): 75% of quota - Standard expectation
- •Sales Managers: 80% of quota - Higher accountability
- •Executives: 80-90% of quota - Strategic leadership requirement
- •New Hires (first year): 50-60% of quota - Ramp period accommodation
Threshold Exceptions
Thresholds below 75% or above 90% require:
- •Written justification
- •Finance approval (budget impact)
- •Compensation Review Board approval
Threshold Variations by Role Type
| Role Type | Recommended Threshold | Rationale |
|---|---|---|
| Individual Contributors (IC) | 75% of quota | Standard expectation |
| Sales Managers | 80% of quota | Higher accountability |
| Executives | 80-90% of quota | Strategic leadership requirement |
| New Hires (first year) | 50-60% of quota | Ramp period accommodation |