What Does On Target Earnings (OTE) Mean In Terms Of Salary?
What Does On Target Earnings (OTE) Mean In Terms Of Salary? | Are OTE jobs worth it. By employers offering on-target earnings to employees, encourages them to bring in impressive results and submit valuable work. OTE is most common in sales as it is a contract that guarantees a specific commission percentage.
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. In this article, you will learn more what on-target earnings are, how to calculate them, their benefits, and if OTE jobs are worth it.
What is On-target earnings (OTE)?
OTE stands for On-Target Earnings. On-target earnings refer to an employee’s pay structure made of basic salary and the additional variable component such as commission as their compensation. Most commonly find in sales it involves a contract between the company and the sales person that ensures a specific commission percentage.
An OTE salary system is a compensation strategy often used as a commission incentive to encourage sales employees to reach their quotas.
How is OTE salary calculated?
Your OTE is the amount of money you can expect to earn if you hit 100% of your quota.
- Start by determining your employee’s base salary. You’ll first want to set the base salary for your employee.
- Figure out the sales quota. The next part of your OTE package for salespeople is the quota they need to meet to earn a strong commission.
- Determine the company’s projected goals. Determining the bonus portion of OTE for executive team members usually depends on the projected company goals you want to meet.
- Add the base salary together with the commission or bonus amount as shown below.
Sales OTE = base salary + projected commissions from sales earned at 100% of quota.
Executive OTE = base salary + likely bonus.
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.
What’s the difference between OTE and a bonus?
OTE compensation represents an employee’s total annual salary combined with any annual bonus or commission. Therefore, an employee bonus is only one element of OTE.
What does 25k OTE mean?
This means that the salary is only achieved if the employee meets the performance targets associated with the job. If you see the phrase OTE in the salary of a job advert, it means On Target Earnings, or sometimes On Track Earnings.
For example, a sales job posting might say “$50,000 OTE”. This number is sometimes rounded to an even earnings number for convenience. For example, your true OTE might be $50,240 but you might be told that it is $90k for simplicity.
What is a good OTE?
A good OTE 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 examples
An Account Executive has an OTE of $100,000. Their base salary is $52,000 per year. They have a monthly quota of $40,000 and earn a 10% commission off every deal they sell. Therefore, if they close 100% of their quota every month, they would earn $4,000 every month. This means $48,000 in commission every year. Add that $48k to the $52k base salary, and you get the $100k on-target earnings.
What does 200k OTE mean?
200k OTE refers to the expected total pay an employee may receive in one year if they meet all expected performance requirements. For example, if an executive’s annual salary is $150k with a variable bonus amount of $50k, said employee will only receive $200k if they hit 100% of their quota.
What Are The Benefits Of OTE? | Are OTE jobs worth it?
One of the biggest benefits of on-tatget earnings is employee motivation and employee engagement. OTE are a great way to reward employees for delivering results for your company.
Benefits are as follows:
- Increased productivity: The potential for a bonus encourages employees to stay on task. They’ll consistently submit impressive work that significantly increases your company’s performance.
- Team member motivation: Having a set goal and compensation in mind allows your employees to more easily picture themselves with this reward. This motivates them to work harder.
- Employee engagement: With the potential for a financial reward, employees will feel more excited to complete their tasks and accomplish goals. This makes them feel more engaged at work.
Disadvantages with OTE models
Some issues can occur even with large enterprises that struggle with calculating OTE for sales candidates. Typically, there are two points during the hiring process at which issues with OTE arise.
- The employer changes their tune after the candidate is hired, and ratchets down the OTE.
- The hiring manager wants to make a role more attractive, and inflates the OTE.
What does 50 50 OTE mean?
Its 50/50 split between base salary and commission. When looking at OTE (On-Target Earnings), the majority of compensation plans have half a rep’s earnings being base salary and the other half being commission. While there are exceptions, this is the standard rule of thumb.
What is Fully-ramped OTE?
Most sales roles require some ramp time. Because of this, OTE usually doesn’t consider ramp quotas and payouts. However, good sales organizations will either give you a draw or increase your commission rate to make up for the lower quotas.
Recommendation
- What Does DOQ Mean About Job Salary?
- What Is Salary DOE Meaning On Job Descriptions?
- What Is Attrition Vs Turnover? (Employee Attrition)
