On-target earnings: How an OTE salary works

On-target earnings (OTE) is a common compensation metric used to motivate people to achieve more in the workplace. When used correctly, an OTE salary encourages team members to work harder and makes commission expense forecasting easier.

It engages employees by giving them a clear view of their income potential with realistic target earnings. And OTE works. People tend to participate more and work harder when they see how much they can earn.

When your team works toward earning the maximum compensation, they promote higher productivity and better business results.

What is an OTE salary? 

An OTE salary is a compensation plan that reflects an employee’s total achievable pay, including their base salary and additional incentives if they meet performance goals. It may include capped or uncapped commissions.

Sales OTE is particularly popular because it motivates team members to achieve sales targets, rewarding them with commissions and bonuses if they reach these goals throughout the sales cycle. OTE is also used in executive positions to motivate high-level employees to achieve business, departmental, and sales targets.

How to calculate an OTE salary

An OTE salary is a powerful motivational tool. Here’s how you can show employees their earning potential:

1. Determine the base salary

First, set a salary range for your team members. If you’re unsure how much this should be, you can use benchmark salary data to determine a competitive rate. Remember, hiring globally gives you access to nearly unlimited talent—your compensation plan should pay accordingly.

2. Identify the commission or bonus percentage

Several factors influence a company’s commission or bonus structure, such as how difficult targets are to achieve and how long it takes to reach marketing or sales quotas. The structure should align with business goals, whether encouraging sales at a specific time of the year or incentivizing closing deals quickly. 

3. Set performance quotas or targets

Sales targets and quotas must be realistic but challenging. The purpose of an OTE salary structure is to improve business performance, after all. You need your team members to stretch themselves and exceed expectations to achieve greater earnings.

4. Calculate projected commission based on 100% quota attainment

You can determine the total commission and bonuses you might have to pay by assuming each employee achieves 100% of their quota. This gives you a maximum amount to work with so you can forecast OTE pay expenses.

5. Factor in any additional bonuses 

In addition to target bonuses and commissions, you may offer extra compensation, such as a stipend, annual bonus, or 13th-month pay. Make sure to factor in these supplementary earnings.

6. Add the base salary and commission/bonus to get OTE

Now that you know the base salary, maximum total commission, and bonuses, you can add them together to get your OTE expectation. However, be aware that OTE doesn’t usually include overtime. 

7. Adjust for capped or uncapped OTE scenarios

Decide whether you want capped or uncapped commission for your OTE salaries—both have pros and cons. 

Capped commissions allow you to calculate and set more reliable departmental budgets. Uncapped commissions can motivate employees more, knowing there’s no limit to how much they can earn. However, the uncapped route makes it more challenging to forecast salary expenses.

Benefits of an OTE salary

An OTE salary offers numerous advantages. Here are just a few:

• Motivates team members to meet goals: Give your people higher earning potential, and they’ll picture what they could do with the funds. This can be a strong motivator for financially motivated workers.
• Aligns employee and company success: Aligning individual and business goals is an excellent way to hit targets and improve earnings. The better your team members perform, the better the company does—higher revenue means higher pay. 
• Encourages high performance: Many team members will perform at their peak every day to reach their targets, particularly if you have an uncapped OTE structure where they can earn unlimited compensation.
• Flexibility in compensation plan: You decide how you’ll structure team members’ OTE, enabling you to leverage tax benefits and maximize their compensation.

Examples of jobs with OTE salaries

An OTE salary structure is particularly suited to specific roles, often relating to sales. The following positions benefit from on-target earnings:

Sales representatives 

Sales roles often operate on an OTE basis throughout the sales cycle. Companies set targets, and employees who achieve them earn incentives like commissions and bonuses.

For example, if a sales representative has a base salary of $35,000 with an OTE of $55,000, they know they can earn an additional $20,000 annually in sales commission by hitting their quotas.

Account executives

An OTE structure also works well for jobs that involve building and maintaining relationships with clients. 

An account executive’s OTE expectation might be $98,000, with a base salary of $62,000. Their monthly quota could be $30,000 with a 10% commission ($3,000) on that amount. Assuming they hit their target every month, this would mean an extra $36,000 per year, adding up to $98,000 in total compensation. 

Marketing directors

This executive oversees the entire marketing department and is largely responsible for determining whether the company meets revenue targets. Paying marketing directors on a commission basis in addition to their base salary can motivate them to be high performers.

Let’s say an exec’s base salary is $130,000, and their annual quota is $1.5 million in sales. For every 25% of their quota they hit, they get a $5,000 bonus. So they’ll earn an additional $20,000 if they reach the sales target, placing their OTE at $150,000. 

Field sales representative

This is an entry-level position on a sales team. The annual salary might not be exorbitant, but a generous OTE shows representatives that their efforts add up. 

For example, you could motivate team members with a base salary of $30,000 and an expected OTE of $50,000. Make it uncapped, and the earning potential is limitless.

Simplify OTE payroll with Oyster

Oyster’s Global Payroll helps you easily handle payroll, bonuses, and benefits for performance-based roles like executive and sales teams, ensuring base pay and commission payments are always accurate and legally compliant. Whether your team is local or global, Oyster keeps things simple so you can focus on growing your business.

FAQs

Learn more about on-target earnings salaries.

Is OTE salary guaranteed? 

No, OTE salary isn’t guaranteed. A salaried employee’s base compensation is certain, but additional commissions and bonuses aren’t set in stone. Achieving an OTE salary depends on an individual’s motivation levels, efficiency, and skill.

What happens if performance targets aren’t met?

If performance targets aren’t met, the employee doesn’t get their commission and bonus incentives, and their total compensation will only include their base salary.

There may be other disciplinary consequences, but this depends on the company and its executives.

How is OTE calculated for capped vs. uncapped structures?

OTE is calculated similarly for capped and uncapped structures—the base salary plus any incentives like commissions and bonuses. However, with an uncapped system, the potential to earn is limitless. The better an employee performs, the more they can earn. 

This makes forecasting OTE salaries more difficult, as sales can be highly variable between employees. 

Can OTE change over time?

Yes, OTE can change over time. It all depends on the company and how it structures its OTE salaries. At the very least, people expect an annual raise to keep up with inflation. OTE salaries are no different. Team members need the potential to earn more with every passing year. Raises should cover both base pay and additional incentives.

Raising OTE salaries also keeps a company competitive when looking for new talent. And don’t forget that improved employee performance from raising OTEs typically leads to greater revenue for the company.

Is OTE net or gross?

OTE is calculated based on gross income, including base salary, commissions, and bonuses. It’s an employee’s total earnings before tax.

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About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.