On-target earnings (OTE)
Summary definition: The total compensation an employee is projected to earn if they fully achieve their performance targets (i.e., combined base salary and variable pay).
What is OTE?
On-target earnings, or OTE, is a compensation figure that represents what an employee stands to earn if they hit 100% of their performance goals.
Most commonly found in sales roles, the standard on-target earnings meaning is the sum of a fixed annual base salary and a target-based variable component (e.g., commission rates or a sales quota bonus).
On-target earnings, however, aren’t a compensation floor or cap, as the variable component’s value is calculated based on the employee’s performance. In other words, the only limit to how much OTE pay an employee can potentially earn is the degree to which they exceed their quota requirements.
Key takeaways
- On-target earnings (OTE) is the projected total compensation an employee may earn by achieving 100% (or more) of defined performance targets.
- OTE wages serve distinct functions across recruiting, quota-setting, and equity analysis, making them a core tool for structuring competitive compensation within variable-pay roles.
- Effective OTE compensation policies require clear guidance on pay mix, market benchmarking, quota calibration, and procedures for above- and below-target results.
What is OTE salary?
An OTE salary is more than just a number on a job posting. When implemented well, an OTE range aligns employee incentives with business outcomes and gives HR teams a consistent basis for evaluating and communicating salary expectations.
| Use case | OTE rules |
| Recruiting | An OTE commission or salary is the figure that appears in job postings. It communicates earning potential and anchors candidate expectations before an offer is extended. |
| Quota-setting | OTE payment ties directly to sales targets. If targets aren’t calibrated correctly, OTE sales become misleading: either inflated beyond what top performers can realistically achieve, or set so low that it fails to motivate. |
| Equity analysis | OTE expectations allow HR to compare total earning potential across roles, levels, and regions. This is particularly important when managing distributed sales teams operating within different markets. |
How is OTE salary calculated?
OTE in sales is commonly calculated by adding an annual base salary to the target variable pay if the quota is 100% achieved.
OTE equation
OTE = [Base salary] + [100% of target variable pay]
For example, imagine a sales manager role with the potential to earn $100,000 annually based on their OTE. Only part of their compensation (i.e., 60,000) is guaranteed in their salary, while the other $40,000 is based on their quarterly performance.
Unfortunately, one year they achieved only 90% of their overall sales quota, meaning their income that year was only $96,000. The following year, however, they beat their OTE expectations, hitting 115% of their sales quota. As a result, their income that year was $106,000, mirroring how far they exceeded their goals ($40,000 × 15% = $6,000).
What are some common salary OTE splits?
There’s no universal pay structure when piecing together OTE, meaning salary and variable component splits vary by role, employer, industry, etc. Yet, the most commonly prioritized factor is how directly the individual’s performance drives company revenue.
An entry-level sales representative, for example, may see a 70/30 split (i.e., 70% fixed salary + 30% commissions), where the performance-based component is reduced due to their lack of sales experience. A sales lead, however, may have a 65/35 split, reflecting the greater impact they have on total revenue by handling more clients.
As individual deal ownership increases, so does the variable share (e.g., enterprise sales roles may see 60/40, while account executives reach 50/50).
The only notable exception is often sales leadership (60/40 or 70/30), as their performance is based on a team’s overall success rather than their own sales count.
How do you design an OTE payment program?
Designing an effective OTE pay plan requires aligning compensation structures with role-based expectations, business targets, and market benchmarks. To that end, common decision-making steps include:
- Setting primary OTE salary mix: The ratio of base to variable pay should reflect how directly a role drives revenue. In other words, higher variable ratios are appropriate for roles with clear individual impact on sales outcomes, while lower ratios suit roles with shared or indirect influence.
- Anchoring OTE expectations to market data: Set benchmarks based on total compensation, not just base salary. Compensation surveys and offer data should reflect competitive OTE wages for equivalent roles and markets.
- Calibrating attainable quotas: OTE compensation loses credibility when targets are routinely out of reach. A well-structured plan should therefore allow 60–70% of the team to hit or exceed quotas in a given period.
- Defining above- and below-target results: Specify the accelerated structure for overachievers and whether a floor applies for underperformance.
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