On-target earnings, typically found in sales, is a pay structure where the total remuneration offered to the employee consists of their basic salary and a variable component i.e commission based on performance.
On-target earnings (OTE) meaning and definition
OTE, also known as On Target Earnings, is the total amount of money a sales executive can make, if they hit 100% of their quota allotted to them. Its typically offered as a percentage of the base salary that the employee will make if they hit 100% of the quota.
The formula for calculating OTE is as follows:
On-Target Earnings (OTE) = Annual base salary + annual commission earned at 100% of quota
Keep in mind, that OTE does not include one-time bonuses, overtime compensation or benefit.
What is a good OTE?
Short answer, it depends. Sales reps salaries including commissions are dependent on how competitive the industry is,
Benefits of On-Target Earnings
The biggest benefit of OTE is that the sales reps are motivated to make their quota since this is an incentive that they can make on top of their base salary. OTE has shown to improve morale, prompt sales reps to push boundaries and improve overall sales productivity which leads to higher revenue for the organization.
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