OTE or On-Target Earnings

A definition of OTE with frequently asked questions.

On-Target Earnings (OTE)

October 9th, 2019

On-target earnings, otherwise known as on-track earnings or just OTE, is a metric used to forecast the total potential compensation of a particular position when all performance targets are achieved. OTE is most common in sales as it is a contract that guarantees a specific commission percentage.

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Determining OTE:

OTE can be a fixed, lump payment, a specific commission percentage, or a combination of both. A good general guideline is to base OTE on one-fifth of the annual sales quota or 6 to 8 times the sales quota, but you can vary these guidelines based on the competitiveness of your industry, the experience of your salespeople, the complexity of your sales process, and your company's maturity, revenue, etc.

OTE should be one number that all parties understand and agree to. You can base your OTE on the reality of a candidate's established W2 earnings, but allow some growth to entice potential candidates. It is important not to inflate the OTE number during the hiring process and then lower it after a candidate has accepted your job offer, as this would be unethical. Using a realistic OTE will motivate and engage your employees and reward them for the work they have done.

OTE Breakdown:

  • Sales OTE = base salary + projected commissions from sales.
  • Executive OTE = base salary + likely bonus.

FAQs:

What is OTE?

OTE is equal to an employee's base pay plus an additional variable component, such as commission. So it is the total potential salary an employee can earn; the income earned when reaching all sales, lead generation, or similar targets which is then added to the base salary. OTE often also refers to the amount of commission that is available if an employee meets all sales targets.

OTE can also be an executive pay schedule that is based on the executive achieving all specified company goals.

Take a look at our guide to OTE.

Is OTE on top of salary?

No, on-target earnings is the total possible salary an employee can earn; that is, base salary plus possible commission.

How does OTE work in sales?

In sales, OTE is the potential, projected commission that a sales employee can earn if he or she meets all sales targets. This projected commission is added to the employee's base salary for a total combined salary, or OTE.

What is included in OTE?

OTE is the total salary that an employee can earn for normal work hours, which includes commission, shift loadings, and allowances, but excludes overtime.