One of the key components of an employee’s pay structure is often termed as on-target earnings or OTE. This is a variable component of the pay which is calculated according to the sales or performance targets achieved by the employee. This is sometimes termed as commission, incentives, or on-track earnings also. OTE is a common component of remuneration in sales-related job roles.
What is OTE?
On-target earnings or OTE is a numeric value used to forecast the total potential compensation of an employee when all performance targets are achieved. This is a common form of compensation in sales, as it incentivizes the sales personnel to achieve higher targets by guaranteeing a specific commission percentage on the amount of revenue generated.
Benefits of OTE
On-target earnings or OTE is extremely beneficial for employee motivation and employee engagement in every industry. It is an effective method of rewarding employees for high performance.
Often, in businesses that are looking for higher sales productivity, OTE helps in improving employee motivation and results in higher sales target achievement.
Is OTE on top of salary?
OTE is the total earnings possible for an employee who achieves all performance targets. So, OTE is calculated by adding the base salary of the employee and the potential amount of commission they can earn.
How Does OTE Work in Sales?
In a sales job, the employee is expected to generate revenue for the company by achieving sales targets. Therefore OTE or on-target earnings are calculated as the sum of the base salary and total commission earned. The commission is usually a percentage of the revenue generated by the salesperson.
What is Included in OTE?
On-target earnings or OTE is the total salary an employee can earn if they attain all performance targets. This includes incentives, shift loadings, and allowances earned in an employee’s normal working hours. OTE does not include overtime.
What is a good OTE?
The on-target earnings or OTE differs according to industry, the complexity of the job, the experience level of the employee, and the targets set by the management. Generally, a good OTE is one-fifth (20%) of the sales targets. For example, if the annual sales target is Rs. 14, 00,000/- a good OTE would be Rs.2, 80,000/-.
In the real world, if someone has been offered 12-16% of the quota as the OTE – it can be termed as a good OTE.
How to Evaluate OTE in a Sales Job Offer?
When considering a sales job offer, spend some time understanding OTE meaning to make an informed decision about the job offer. Here are some questions you can ask your prospective employer to gain an understanding of your OTE earning better –
- What does OTE mean for your hiring manager? Understand from your prospective employer if they think of the performance targets as conservative or high.
- Current Team’s OTE PerformanceAsk your hiring manager what percentage of the team is above and below the OTE salary right now. It is a good idea to ask about the performance of the newest reps in the company to get a fair idea.
- What are the short-term OTE goals?Usually, it is easier to understand the attainability of the OTE you should break it down into short-term goals. Ask your hiring manager about the monthly, quarterly, and half-yearly targets you will be expected to achieve to achieve the annual salary OTE.
- Understand the Sales Cycle to know the OTE ramp timeSome industries work on an annual sales cycle, while others work on a half-yearly sales cycle. Understanding the sales cycle helps you estimate how long it will take to achieve the OTE targets.
- Sales Development Support for OTEAsk your prospective employers about the support system they provide to the sales team. This will help you determine the attainability of the on-target earnings.
On-Target Earnings(OTE) Example
If your base salary is Rs.80,000/- and your commission-based earnings is Rs. 20,000/- then your OTE is Rs.1,00,000/-
OTE is the total of the base salary and the commission earned according to the performance targets achieved.
To calculate the OTE in a job role, you must add together the base salary and the variable commissions that the employee is entitled to (as per the performance targets). Therefore OTE is calculated as –
Sales OTE = Base Salary + Projected Sales Commissions
Executive OTE = Base Salary + Performance Bonus