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.
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.
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.
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.
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.
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.
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.
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 –
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
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