Everything you need to know about OTE meaning, salary structures, calculations, and how to design compensation plans that actually motivate
If you've browsed sales job listings or received a compensation offer mentioning "OTE," you've likely wondered: what does OTE stand for? OTE is an acronym for On-Target Earnings, sometimes also called "on-track earnings." This term has become the standard in sales compensation discussions and is essential for anyone considering a role with variable pay components.
Understanding what OTE stands for is crucial because it represents the total compensation you can expect to earn when you meet your performance targets. Unlike a straightforward salary figure, OTE encompasses both guaranteed pay and performance-based earnings, making it a more nuanced metric for evaluating job opportunities.
The term originated in sales environments where compensation packages typically combine a base salary with commissions or bonuses tied to performance metrics. As performance-based compensation has expanded beyond traditional sales roles, understanding what OTE means has become increasingly important across various industries and positions.
When you see "OTE" in a job posting or offer letter, it signals that the role includes variable compensation tied to specific goals or quotas. This is fundamentally different from a pure salary position where your earnings remain constant regardless of performance. The OTE meaning in salary discussions indicates that your actual earnings will depend on how well you perform against predetermined targets.
The concept of OTE helps create transparency in compensation discussions. Rather than advertising just a base salary or an unrealistic maximum earning figure, OTE provides a realistic target that assumes solid—but not exceptional—performance. This makes it easier for job seekers to compare opportunities and for employers to set clear expectations.
What is OTE salary? Simply put, OTE salary represents the total annual compensation an employee can expect to earn when they achieve 100% of their performance targets. It combines the guaranteed base salary with the variable compensation (commissions and bonuses) that becomes available when quota is met.
The fundamental formula for understanding what OTE salary means is:
OTE = Base Salary + Variable Compensation at 100% Target Achievement
To illustrate the OTE meaning in salary terms, consider this example: A company offers a sales position with a $70,000 base salary and $70,000 in potential commission at full quota attainment. The OTE for this position would be $140,000. This means that if the employee hits 100% of their sales quota, they can expect to earn $140,000 for the year.
Understanding the salary OTE meaning requires recognizing several important characteristics:
1. OTE is Not Guaranteed
Unlike a pure base salary, OTE represents potential earnings. The actual amount you receive depends entirely on your performance against targets. If you achieve only 80% of quota, you'll earn less than the stated OTE. This distinction is critical—research shows that approximately 67% of salespeople miss their quotas annually, meaning many employees earn below their stated OTE.
2. The Base Component is Fixed
Within the OTE structure, the base salary portion is guaranteed. This provides a minimum income floor regardless of performance, offering financial stability even during challenging periods. The base salary is typically paid on a regular schedule—bi-weekly, semi-monthly, or monthly.
3. Variable Pay Depends on Performance
The commission or bonus portion of OTE only materializes when you meet your targets. This creates a direct link between your efforts and your earnings. Understanding how commission structures work is essential for anyone evaluating OTE-based compensation.
4. OTE Assumes Target Achievement
When companies advertise OTE figures, they assume the employee will hit exactly 100% of their quota. Actual earnings may be higher (if targets are exceeded, especially with accelerators) or lower (if targets are missed).
A critical aspect of understanding what OTE salary means is recognizing that OTE represents a target, not a guarantee. The gap between advertised OTE and actual earnings can be substantial depending on quota attainment rates within the organization.
However, top performers may significantly exceed their OTE, especially in positions with uncapped commission structures. A salesperson who achieves 150% of quota could earn substantially more than their stated OTE, particularly if accelerators—mechanisms that increase commission rates above quota—are in place.
For a deeper understanding of how these calculations work, you can explore Prowi's OTE calculator to model different scenarios.
Understanding how OTE works requires breaking down its component parts and examining how they interact to determine your total compensation. The mechanics of OTE compensation involve several interconnected elements that together create your earning potential.
1. Base Salary
The base salary is your guaranteed, fixed compensation that you receive regardless of performance. This amount is typically paid on a regular schedule and remains constant throughout the year. The base salary provides financial stability and covers your basic living expenses even during slower performance periods.
In European markets, there's often a cultural preference for higher base salaries that align with work-life balance values. This regional variation affects how companies structure their OTE packages when hiring across different markets.
2. Variable Compensation
Variable compensation encompasses all performance-based pay elements, including:
3. Quota or Target
The quota represents the performance level you must achieve to earn your full variable compensation. Quotas may be expressed as:
When you achieve exactly 100% of your quota, you earn your full OTE. However, most compensation plans include provisions for partial achievement. The relationship between quota attainment and earnings is typically linear up to 100%, though some plans include thresholds or floors.
For example, with a $100,000 OTE (composed of $60,000 base and $40,000 variable):
| Quota Achievement | Variable Earned | Total Compensation |
|---|---|---|
| 50% | $20,000 | $80,000 |
| 75% | $30,000 | $90,000 |
| 100% | $40,000 | $100,000 (OTE) |
| 125% | $55,000* | $115,000 |
| 150% | $70,000* | $130,000 |
*Assumes accelerators kick in above 100%
Understanding these mechanics helps both employees and employers align expectations. For employers, tools like Prowi's platform can automate these calculations and provide real-time visibility into compensation.
Understanding OTE salary calculation is essential for evaluating compensation offers and setting realistic expectations about your earning potential. Let's walk through the formulas and provide concrete examples.
The fundamental calculation for OTE is straightforward:
OTE = Annual Base Salary + Annual Variable Compensation at 100% Target
Step 1: Identify the Base Salary Determine the guaranteed annual base salary—the fixed amount paid regardless of performance.
Step 2: Identify the Variable Compensation at Target Calculate what you would earn in commissions and bonuses if you achieve exactly 100% of your quota.
Step 3: Add Them Together The sum of base salary and target variable compensation equals your OTE.
Example 1: Sales Development Representative (SDR)
OTE Calculation: $55,000 (base) + $30,000 (variable) = $85,000 OTE
Pay Mix: 65% base / 35% variable (approximately 65/35)
Example 2: Mid-Market Account Executive
OTE Calculation: $70,000 (base) + $70,000 (variable) = $140,000 OTE
Pay Mix: 50% base / 50% variable
This 50/50 split is common for Account Executives who have direct deal-closing responsibility.
Example 3: Enterprise Account Executive with Accelerators
OTE Calculation: $100,000 (base) + $80,000 (variable) = $180,000 OTE
Above-Target Scenario: If this AE closes $1,500,000: - First $1,000,000: $80,000 (8%) - Additional $500,000: $60,000 (12% accelerator rate) - Total Commission: $140,000 - Total Earnings: $240,000 (33% above OTE)
Example 4: Sales Manager with Team Override
OTE Calculation: $95,000 (base) + $70,000 (variable) = $165,000 OTE
For interactive modeling of these scenarios, try Prowi's commission model calculator.
One of the most important distinctions job seekers must understand is the difference between OTE and base salary. These two compensation metrics serve different purposes and carry different implications for your financial planning.
| Aspect | Base Salary | OTE |
|---|---|---|
| Guarantee | Fully guaranteed | Not guaranteed |
| Performance Link | None | Directly tied to targets |
| Variability | Fixed and predictable | Changes based on results |
| Risk Level | Low risk | Higher risk |
| Amount | Your minimum earnings | Your potential earnings |
| Payment Schedule | Regular intervals | Mixed (base + variable timing) |
Understanding the salary OTE meaning versus base salary is crucial for several reasons:
1. Financial Planning
When budgeting for monthly expenses, mortgage applications, or other financial commitments, you should primarily rely on your base salary rather than your full OTE. Lenders and financial institutions typically focus on guaranteed income, and you should too.
2. Risk Assessment
A higher proportion of OTE coming from variable pay means greater income variability. If you're risk-averse or have significant fixed expenses, you might prefer roles with higher base-to-OTE ratios.
3. Comparing Job Offers
When evaluating multiple opportunities, looking at OTE alone can be misleading. A position with $100,000 OTE (80% base) offers more security than one with $120,000 OTE (50% base), even though the latter has higher total potential.
4. Performance Pressure
Roles with lower base-to-OTE ratios typically come with higher performance expectations and pressure. Understanding this trade-off helps you choose positions that align with your work style and risk tolerance.
Offer A: - Base Salary: $80,000 - Variable at Target: $20,000 - OTE: $100,000 - Pay Mix: 80/20
Offer B: - Base Salary: $50,000 - Variable at Target: $50,000 - OTE: $100,000 - Pay Mix: 50/50
While both offers have the same OTE, they represent very different opportunities:
If you hit only 80% of quota: - Offer A: $80,000 + (80% × $20,000) = $96,000 - Offer B: $50,000 + (80% × $50,000) = $90,000
If you exceed quota at 130%: - Offer A: $80,000 + (130% × $20,000) = $106,000 - Offer B: $50,000 + (130% × $50,000) = $115,000
This illustrates how the same OTE can produce vastly different outcomes depending on the pay mix and your performance level. The Commission Dictionary provides additional terminology to help navigate these distinctions.
The pay mix describes the ratio between base salary and variable compensation within the OTE structure. Getting this balance right is crucial for both motivation and financial security.
Different roles warrant different pay mix structures based on their direct impact on revenue and the length of sales cycles:
SDR/BDR Roles: 60/40 to 70/30 - Higher base reflects less direct revenue influence - Focus on top-of-funnel activities - Shorter time to see results from efforts
Account Executives: 50/50 - Direct deal-closing responsibility - Clear connection between effort and outcomes - Industry standard for quota-carrying sales roles
Customer Success Managers: 70/30 to 80/20 - Focus on retention and expansion - Longer-term relationship building - Less transaction-oriented
Sales Managers/VP Sales: 60/40 to 70/30 - Team-based metrics blend individual and group performance - Strategic responsibilities beyond direct selling - Often includes equity components at senior levels
Pay mix expectations vary by geography. European markets often show preferences for higher base salary components that align with cultural values around work-life balance and financial security. Companies hiring internationally should consider these regional differences when structuring OTE packages.
When evaluating pay mix, consider:
Understanding different commission pay structures can help you evaluate which pay mix best fits your situation.
The quota-to-OTE ratio is a critical metric that determines how much revenue you need to generate relative to your total potential earnings. Understanding this ratio helps evaluate whether quotas are realistic and compensation is fair.
Quota-to-OTE Ratio = Annual Quota ÷ OTE
The industry standard ratio falls between 4x to 6x, with a median of approximately 4.2x. This means for every dollar of OTE, companies expect between $4 and $6 in revenue generation.
The quota-to-OTE ratio serves several important purposes:
Ensures Profitability: A 4-6x ratio means approximately 20-25% of revenue goes to salesperson compensation, leaving room for other costs and profit margins.
Creates Fairness: Consistent ratios across the sales team prevent inequities where some reps have easier paths to OTE than others.
Guides Quota Setting: When setting new quotas, the ratio provides a framework for ensuring targets are neither too aggressive nor too lenient.
Different business models can support different ratios:
SaaS Companies with High Margins: May use lower ratios (3-4x) due to favorable unit economics and recurring revenue
Transactional Sales: Often use higher ratios (5-7x) due to shorter sales cycles and higher volume
Enterprise Sales: May use lower ratios (3-4x) due to complex, lengthy sales processes
Example Calculation:
This means the Account Executive must close $700,000 in revenue to earn their full $140,000 OTE.
| Ratio | Interpretation |
|---|---|
| Below 3x | Unusually generous; may indicate unsustainable plan |
| 3-4x | Generous; appropriate for complex enterprise sales |
| 4-5x | Standard; industry benchmark |
| 5-6x | Moderate to aggressive |
| Above 6x | Very aggressive; may indicate unrealistic expectations |
If a company's ratio significantly exceeds 6x, investigate whether quotas are achievable. Ask about historical attainment rates and what percentage of the team hits quota.
Use Prowi's OTE ratio calculator to analyze different scenarios and understand how changes to quota or OTE affect this critical ratio.
OTE structures vary significantly depending on the role, company size, and industry. Understanding these variations helps you evaluate opportunities and benchmark compensation offers.
Sales Development Representatives (SDR) / Business Development Representatives (BDR)
| Component | Range |
|---|---|
| Base Salary | $45,000 - $65,000 |
| Variable Pay | $15,000 - $30,000 |
| Total OTE | $60,000 - $95,000 |
| Pay Mix | 70/30 to 60/40 |
SDR/BDR roles focus on top-of-funnel activities like prospecting and qualifying leads. The lower variable component reflects that these roles don't directly close revenue.
Account Executives (SMB/Mid-Market)
| Component | Range |
|---|---|
| Base Salary | $65,000 - $90,000 |
| Variable Pay | $45,000 - $90,000 |
| Total OTE | $110,000 - $180,000 |
| Pay Mix | 50/50 to 60/40 |
Account Executives have direct deal-closing responsibility, justifying higher variable components and overall OTE.
Enterprise Account Executives
| Component | Range |
|---|---|
| Base Salary | $90,000 - $130,000 |
| Variable Pay | $90,000 - $170,000 |
| Total OTE | $180,000 - $300,000+ |
| Pay Mix | 50/50 |
Enterprise roles command premium compensation due to longer sales cycles, larger deal sizes, and the expertise required.
Sales Managers
| Component | Range |
|---|---|
| Base Salary | $90,000 - $120,000 |
| Variable Pay | $30,000 - $60,000 |
| Total OTE | $120,000 - $180,000 |
| Pay Mix | 65/35 to 70/30 |
Sales managers typically have variable pay tied to team quota attainment rather than individual performance.
VP of Sales
| Component | Range |
|---|---|
| Base Salary | $130,000 - $180,000 |
| Variable Pay | $60,000 - $120,000 |
| Total OTE | $190,000 - $300,000+ |
| Pay Mix | Varies; often includes equity |
VP-level compensation often includes significant equity components beyond cash OTE.
Several factors influence where within these ranges a specific role falls:
For a comprehensive overview of how different sales commission models work, explore additional resources on structuring effective compensation.
One critical distinction in OTE structures is whether the variable compensation is capped or uncapped. This difference significantly impacts earning potential and should be a key consideration when evaluating job offers.
Capped OTE means there's a maximum limit on how much you can earn in variable compensation, regardless of how much you exceed your quota. Once you hit the cap, additional performance doesn't translate into additional earnings.
Example of Capped OTE: - Base Salary: $70,000 - Variable Cap: $70,000 - OTE: $140,000 - Cap Trigger: 125% of quota
In this scenario, even if you achieve 200% of quota, your variable compensation remains capped at $70,000 (or the cap trigger amount), limiting maximum earnings.
Uncapped OTE means there's no ceiling on your potential earnings. The more you sell, the more you earn. Many uncapped plans also include accelerators that increase your commission rate for sales above quota—typically 1.5x to 2x the base rate.
Example of Uncapped OTE with Accelerators: - Base Salary: $70,000 - Variable at 100%: $70,000 - OTE: $140,000 - Commission Rate: 10% up to quota, 15% above quota
If you achieve 150% of quota: - First 100%: $70,000 - Additional 50%: $52,500 (at 15% rate) - Total Variable: $122,500 - Total Earnings: $192,500
For Employees:
| Factor | Capped OTE | Uncapped OTE |
|---|---|---|
| Income ceiling | Limited | Unlimited |
| Predictability | Higher | Lower |
| Motivation at end of period | May decrease | Remains high |
| Attraction to top performers | Lower | Higher |
For Employers:
| Factor | Capped OTE | Uncapped OTE |
|---|---|---|
| Cost predictability | Higher | Lower |
| Attracting top talent | Harder | Easier |
| Alignment with company growth | Potentially misaligned | Strong alignment |
| Budget surprises | Fewer | More possible |
When evaluating an OTE offer:
While OTE originated in traditional sales roles, its use has expanded across numerous industries and functions. Understanding where OTE is common helps job seekers identify opportunities and evaluate compensation norms.
Technology and Software
The tech industry, particularly SaaS companies, is perhaps the most prominent user of OTE compensation. Roles include: - Account Executives - Sales Development Representatives - Customer Success Managers (increasingly) - Solutions Consultants - Sales Engineers
Financial Services
Banks, insurance companies, investment firms, and financial advisory practices use OTE for: - Financial Advisors - Insurance Sales Agents - Loan Officers - Wealth Managers
Healthcare and Life Sciences
Pharmaceutical and medical device companies rely on OTE compensation for: - Pharmaceutical Sales Representatives - Medical Device Sales Specialists - Territory Managers
Real Estate
The real estate industry is predominantly commission-based: - Real Estate Agents - Commercial Brokers - Mortgage Loan Originators
Recruitment and Staffing
Staffing agencies and corporate recruiting teams use OTE for: - Recruiters (agency and in-house) - Account Managers - Business Development Managers
Media and Advertising
Advertising sales and media companies employ OTE for: - Media Sales Representatives - Advertising Account Executives - Sponsorship Sales Managers
Roles with OTE compensation typically share these characteristics: - Direct impact on revenue generation - Measurable performance outcomes - Client-facing responsibilities - Quota-based expectations - Competition for talent with other employers
Understanding the complete picture of OTE compensation requires examining both its benefits and drawbacks from multiple perspectives.
1. Higher Earning Potential
OTE structures offer the opportunity to earn significantly more than a fixed salary. Top performers regularly earn 20-50% above their stated OTE through commission accelerators and overperformance.
2. Direct Correlation Between Effort and Reward
Unlike salaried positions where extra effort may go uncompensated, OTE plans create a direct link between your performance and your paycheck.
3. Control Over Your Income
With OTE, your earnings are largely within your control. Rather than waiting for annual raises or promotions, you can directly influence your compensation through your daily efforts.
4. Financial Security Through Base Salary
The base salary component provides a financial safety net even during slow periods or challenging market conditions.
5. Career Portability
A track record of OTE achievement demonstrates your value to future employers and becomes a powerful negotiating tool.
1. Income Unpredictability
Earnings can fluctuate significantly based on factors both within and outside your control—market conditions, territory assignments, product issues, and timing.
2. Performance Pressure
OTE compensation comes with ongoing pressure to meet targets. Research indicates nearly 90% of B2B sales professionals experience burnout, partly due to compensation-related stress.
3. OTE May Be Unattainable
Some companies set unrealistic quotas, making advertised OTE effectively fictional. When 67% of salespeople miss their quotas annually, many employees earn below their stated OTE.
4. Ramp Period Challenges
New hires typically don't earn full OTE immediately. The ramp period can mean months of reduced earnings.
1. Alignment of Interests
OTE structures align employee behavior with company objectives. When salespeople are rewarded for revenue generation, they naturally focus on activities that drive business results.
2. Attract Top Talent
Competitive OTE packages help attract high-performing salespeople who are confident in their abilities and motivated by earning potential.
3. Cost Variability
Variable compensation means payroll costs flex with revenue. When sales are down, commission expenses decrease automatically.
4. Performance Accountability
OTE creates clear, measurable expectations, making performance conversations more objective.
1. Compensation Cost Uncertainty
When salespeople significantly exceed targets, costs can spike unpredictably.
2. Plan Design Complexity
Creating fair, motivating, and sustainable OTE plans is challenging. Poor design can demotivate employees or create legal issues.
3. Turnover Risk
If OTE is perceived as unrealistic or unfair, turnover increases. Replacing salespeople is expensive, with costs often exceeding 100% of annual compensation.
4. Administrative Burden
Tracking, calculating, and paying variable compensation requires robust systems. Research suggests 80% of spreadsheet-based commission calculations contain errors, making automated solutions like Prowi's platform increasingly essential.
Negotiating OTE requires a different approach than negotiating base salary alone. Understanding the components and how to evaluate them empowers you to secure the best possible compensation package.
1. Market Research
Before any negotiation, gather data on typical OTE ranges for your role using industry reports, salary surveys, and professional networks.
2. Company Research
Investigate the specific company's compensation practices: - What's the quota attainment rate? (Ask: "What percentage of reps hit quota last year?") - How are quotas determined and how often do they change? - What's the historical earning data for the team? - How are leads and territories distributed?
3. Know Your Value
Document your track record: - Past quota attainment percentages - Revenue generated in previous roles - Ranking among peers - Any awards or recognition received
1. Base Salary
Arguments for higher base: - Your proven track record reduces risk to the employer - Higher base attracts better candidates - It demonstrates the company's investment in your success
2. Variable Compensation
Request higher commission rates, better accelerators, or improved rates on specific products or deal types.
3. Quota Level
Sometimes you can negotiate the target itself: - Request a reduced quota during ramp period - Ask for quota relief during product transitions or territory changes - Negotiate quarterly resets if market conditions change
4. Ramp Period Terms
Protect your income during the learning curve: - Request guaranteed commission during ramp (e.g., 100% of target variable for first 3 months) - Negotiate reduced quotas that increase gradually - Ask for draw against future commissions
5. Cap Structure
If the plan has caps: - Negotiate higher cap levels - Request uncapped structure for exceptional performance - Ask for accelerators before the cap kicks in
Understanding industry benchmarks helps you evaluate whether an OTE offer is competitive and realistic.
| Ratio | Interpretation |
|---|---|
| 3x or below | Very generous; rare outside specialized enterprise roles |
| 4x | Generous; common for complex, long-cycle sales |
| 5x | Standard; the industry benchmark |
| 6x | Aggressive; common for transactional sales |
| 7x or above | Very aggressive; may indicate unrealistic expectations |
Percentage of Revenue/ACV: - Enterprise AE: 8-12% of ACV - Mid-Market AE: 10-15% of ACV - SMB AE: 12-18% of ACV
Healthy organizations typically see: - 60-70% of reps achieving 100%+ of quota - Top 20% of reps earning 120-150%+ of OTE - Bottom 20% of reps earning 60-80% of OTE
Warning signs: - Less than 50% of team hitting quota (quotas may be unrealistic) - More than 80% of team hitting quota (quotas may be too easy)
OTE benchmarks vary by location. Major tech hubs (San Francisco, New York, London) command premium compensation, while other markets may see adjustments of 15-30% below these levels. Remote roles often fall somewhere in between.
For detailed modeling of how these benchmarks apply to your situation, explore Prowi's business case calculator.
For employers designing OTE compensation, setting realistic quotas is critical for maintaining motivation and reducing turnover.
1. Analyze Historical Performance Data
Review past performance to understand what's achievable. If less than 50% of the team has historically hit quota, targets may be too aggressive.
2. Assess Territory-Specific Potential
Not all territories are equal. Account for differences in market size, existing customer base, and competitive landscape when setting individual quotas.
3. Account for New Salesperson Ramp Time
New hires typically need 3-6 months to reach full productivity. Build ramp periods into quota assignments: - Month 1-2: 25% quota - Month 3: 50% quota - Month 4-5: 75% quota - Month 6+: 100% quota
4. Involve Sales Team Input
Top-down quota setting without input breeds resentment. Involve salespeople in the process to build buy-in and surface market intelligence.
5. Break Annual Quotas into Milestones
Quarterly, monthly, and weekly milestones make large annual quotas feel more achievable and provide regular feedback on progress.
Goals should be challenging but achievable. When quotas are consistently missed, salespeople experience: - Learned helplessness and disengagement - Perpetual disappointment - "Why try?" mentality
When quotas are achievable, salespeople experience: - Flow states from meaningful progress - Motivation from seeing effort translate to results - Confidence to push for overachievement
For more on implementing effective quota structures, review Prowi's guide to OTE and quotas.
Understanding the psychological factors in compensation design helps both employers create motivating plans and employees evaluate whether a plan will work for them.
1. Clear Effort-to-Reward Connection
When salespeople can clearly see how their efforts translate to earnings, motivation increases. Complicated formulas that obscure this connection undermine engagement.
2. Achievable Goals Creating "Flow"
Psychologists describe "flow" as a state of optimal engagement when challenges match capabilities. Quotas that hit this sweet spot drive sustained motivation.
3. Accelerators for Overperformance
Accelerators reward exceptional performance with progressively higher rates—typically 1.5x to 2x the base rate. This makes the extra effort beyond quota feel worthwhile.
4. Recognition Beyond Money
While OTE focuses on financial compensation, public recognition of top performers amplifies motivation.
1. Unrealistic Quotas
When quotas are consistently unattainable, salespeople stop trying. Research shows 67% of salespeople miss quotas—when the majority can't succeed, plan design is likely at fault.
2. "Back to Zero" Syndrome
Monthly or quarterly resets that erase all progress can feel demoralizing, especially for salespeople who just missed target. Consider rolling quotas or annual structures for complex sales.
3. Low Variable Pay Ratios
When variable pay is only 10-15% of total compensation, it doesn't meaningfully motivate behavior. The potential reward must be significant enough to drive effort.
4. Burnout from Constant Pressure
Nearly 90% of B2B sales professionals struggle with burnout. Compensation plans that treat OTE as a stretch goal rather than an achievable target contribute to this crisis.
The best OTE plans: - Make success visible through dashboards and tracking - Celebrate wins publicly - Provide multiple paths to earning - Balance pressure with support - Include team-based elements that foster collaboration
Tools that provide real-time visibility into progress and expected compensation, like Prowi's employee app, help salespeople stay motivated by making the effort-to-reward connection clear.
Both employers and employees make mistakes with OTE that can lead to disappointment, conflict, and turnover.
1. Inflated OTE in Job Postings
Advertising unrealistically high OTE figures attracts candidates but leads to disappointment, distrust, and high turnover when actual earnings fall short.
Solution: Advertise realistic OTE based on actual team performance data. Be transparent about what top, median, and bottom performers actually earn.
2. Overcomplicated Commission Calculations
When salespeople can't easily calculate their expected commission, trust erodes. Complex formulas with multiple variables, exceptions, and adjustments create confusion.
Solution: Keep commission calculations simple. Salespeople should be able to estimate their earnings from a closed deal within seconds.
3. Missing Accelerators
Plans without meaningful accelerators for exceeding quota fail to motivate top performers. Why push past 100% if the marginal reward is minimal?
Solution: Design accelerators that make overperformance significantly more rewarding—typically 1.5x to 2x base rates above quota.
4. Territory-Disconnected Quotas
Applying the same quota to all salespeople regardless of territory potential creates inequity. Some reps have easy paths to OTE while others struggle despite strong effort.
Solution: Adjust quotas based on territory-specific factors: market size, existing customers, competitive landscape.
5. Plans Misaligned with Company Goals
Commission plans that reward behaviors contrary to company strategy create problems. For example, rewarding new logos exclusively while neglecting retention incentivizes churn.
Solution: Align commission structures with strategic priorities. If retention matters, include retention metrics in the plan.
6. Manual Spreadsheet Administration
Research indicates 80% of spreadsheet-based commission calculations contain errors. These errors damage trust and create legal liability.
Solution: Implement automated commission tracking and calculation systems like Prowi's platform that eliminate manual errors.
1. Focusing Only on OTE, Ignoring Base
Candidates who fixate on headline OTE without examining base-to-variable ratios may face financial stress when targets aren't immediately met.
2. Assuming OTE is Guaranteed
OTE represents target earnings, not guaranteed income. Budgeting based on full OTE rather than base salary leads to financial planning problems.
3. Not Asking About Quota Attainment Rates
Failing to research what percentage of the team actually hits quota leaves you uninformed about realistic earning potential.
4. Not Getting Terms in Writing
Verbal promises about commission structures aren't enforceable. Always request all compensation terms in writing.
One of the most important aspects of OTE that new employees must understand is the ramp period—the time between starting a role and being fully productive.
The ramp period is the time it takes for a new salesperson to: - Learn the product and market - Build pipeline and relationships - Develop territory knowledge - Close their first deals - Reach full productivity
Typical ramp periods range from 3-12 months depending on sales complexity:
| Sale Type | Typical Ramp |
|---|---|
| Transactional/SMB | 1-3 months |
| Mid-Market | 3-6 months |
| Enterprise | 6-12 months |
During the ramp period, new hires typically: - Receive reduced quotas (often 25-50-75% scaling) - May receive guaranteed variable compensation - Earn significantly less than stated OTE - Build the pipeline that will generate future earnings
Example Ramp Schedule:
| Month | Quota Level | Typical Approach |
|---|---|---|
| 1-2 | 25% | Training, no sales expected |
| 3 | 50% | Building pipeline |
| 4-5 | 75% | First closes expected |
| 6+ | 100% | Full productivity |
Key ramp-related items to negotiate:
Guaranteed Compensation: Request guaranteed variable pay during ramp—full target variable for months 1-3 and prorated for months 4-6.
Quota Relief: Ensure reduced quotas during ramp with a clear escalation schedule.
Sign-On Bonus: Offset reduced ramp earnings with upfront cash.
Sometimes circumstances require adjusting OTE plans mid-year. Understanding when and how to make these changes is important for both employers and employees.
Economic Downturns: When market conditions affect the entire sales team, quota adjustments may be necessary to maintain motivation.
Loss of Significant Customers: When major accounts are lost due to factors outside a rep's control (bankruptcy, acquisition, etc.), quota relief may be warranted.
Strategic Priority Shifts: When company strategy changes direction, compensation plans may need realignment.
Territory Realignments: Major territory changes may require quota adjustments to reflect new realities.
1. Change Quotas, Not Plan Structure
Adjusting quota levels is simpler and fairer than changing commission rates or plan mechanics mid-year.
2. Communicate Rationale Simultaneously
When changes are necessary, communicate the reasoning to the entire team at the same time to prevent rumors and maintain trust.
3. Limit Frequency
Frequent changes erode trust. Reserve adjustments for significant circumstances and avoid tweaking plans constantly.
4. Honor Earned Commissions
Never retroactively reduce commissions already earned. Changes should only apply prospectively.
5. Document Everything
Any mid-year changes should be documented in writing and acknowledged by affected employees.
If your employer announces mid-year changes: - Request written documentation of all changes - Understand the effective date and whether changes are prospective only - Evaluate whether changes materially alter the value of your compensation package - Consider the pattern—is this a one-time response to unusual circumstances, or part of a pattern?
OTE plans and company revenue forecasting are deeply interconnected. Understanding this relationship provides context for why quotas are set as they are.
Aggregated salespeople quotas form the foundation of a company's revenue target. When a sales team collectively has $10 million in quota, the company is counting on approximately $10 million in revenue (assuming reasonable attainment rates).
This creates a direct link between individual OTE and company financial planning: - CFOs budget based on expected revenue - Hiring plans assume quota coverage - Investment decisions depend on revenue projections
When quotas are set unrealistically high: - Actual revenue consistently falls short of projections - Financial planning becomes unreliable - Cash flow problems can emerge - Hiring and investment decisions are based on faulty assumptions
Conversely, when quotas are too easy: - Revenue exceeds projections (which sounds good but...) - The company may have underinvested in growth - Opportunities are left on the table - Resources aren't optimally allocated
Sophisticated revenue forecasting accounts for expected attainment rates. If historical data shows 80% average attainment, a team with $10 million in quota would be forecast to deliver $8 million in revenue.
This is why tracking attainment rates matters—it enables more accurate forecasting and better business decisions.
The EU Pay Transparency Directive and similar regulations increasingly require employers to provide clear information about compensation structures. This includes: - Specifying base and variable components separately - Explaining what "on-target" means and realistic attainment expectations - Providing visibility into progress and expected compensation
Prowi's platform helps companies meet these transparency requirements while maintaining accurate forecasting.
OTE stands for "On-Target Earnings." It represents the total compensation you can expect to earn when you achieve 100% of your performance targets. OTE combines your base salary with variable compensation (commissions and bonuses) at full quota attainment.
OTE salary is the total annual compensation package that includes both fixed (base salary) and variable (commission/bonus) components. For example, if a role offers a $70,000 base salary and $70,000 in commission at target, the OTE salary is $140,000.
OTE represents target earnings, not guaranteed income. Your actual compensation depends on your performance against quota. If you achieve 100% of quota, you earn your full OTE. At 80% of quota, you'd earn approximately 80% of your target variable plus your full base.
No, OTE is not guaranteed. Only the base salary component is guaranteed. The variable portion depends entirely on your performance against targets. Research shows approximately 67% of salespeople miss their quotas annually.
OTE is calculated by adding your annual base salary to your target variable compensation:
OTE = Base Salary + Variable Compensation at 100% Quota
For example: $70,000 base + $70,000 commission at target = $140,000 OTE
The industry standard quota-to-OTE ratio is 4-6x, with 5x considered optimal. This means if your OTE is $140,000, your annual quota would typically be $560,000-$840,000.
Capped OTE limits your maximum earnings regardless of performance, while uncapped OTE allows unlimited earning potential. With uncapped OTE, exceeding your quota by 150% or 200% results in proportionally higher earnings, often amplified by accelerators.
Pay mix varies by role: - SDR/BDR: 60-70% base - Account Executive: 50-60% base - Sales Manager: 60-70% base
No, budget based on your base salary or a conservative estimate (80-85% of OTE). Since variable compensation isn't guaranteed, relying on full OTE for financial planning can lead to problems if targets aren't met.
This depends on your employment agreement. Some companies pay commissions on closed deals regardless of employment status; others forfeit pending commissions upon departure. Always clarify this in writing before accepting an offer.
A split commission occurs when commission on a deal is divided between multiple salespeople—for example, between an SDR who sourced the lead and an AE who closed the deal.
The Commission Dictionary provides comprehensive definitions of sales compensation terms and concepts.
Understanding what OTE salary means and what OTE stands for is essential for anyone considering a role with performance-based compensation. On-Target Earnings represent the potential compensation available when you achieve 100% of your performance targets, combining guaranteed base salary with variable commissions and bonuses.
OTE is not guaranteed—it represents potential, not promised, earnings. Your actual compensation depends on your performance against quota.
The pay mix matters—the ratio of base to variable compensation significantly impacts your financial risk and reward potential.
Research is essential—before accepting an OTE-based role, investigate quota attainment rates, historical team performance, and what top performers actually earn.
Negotiate strategically—OTE packages have multiple components (base, variable, caps, accelerators, ramp terms) that can all be negotiated.
Plan conservatively—budget based on your base salary rather than full OTE, especially during ramp periods.
Get it in writing—all compensation terms should be documented in your offer letter and commission plan.
Designing effective OTE plans requires balancing motivation with achievability. Key success factors include: - Setting realistic quotas that 60-70% of the team can achieve - Implementing meaningful accelerators for overperformance - Maintaining transparency about how compensation is calculated - Using automated systems to eliminate calculation errors and provide real-time visibility
The best OTE plans align individual motivation with company objectives while providing the transparency and simplicity that builds trust.
Whether you're a job seeker evaluating your first sales role, a seasoned professional considering a new opportunity, or an employer designing compensation plans, understanding OTE is fundamental. The key is to look beyond the headline OTE number and thoroughly evaluate the complete compensation structure, the company's track record, and how well the opportunity aligns with skills, risk tolerance, and goals.
For tools to help model and manage OTE compensation, explore Prowi's platform and OTE calculator.
This guide was created to help professionals understand on-target earnings and make informed compensation decisions.