Unlocking On-Target Earnings (OTE): Definition & Calculations

What Is On-Target Earnings (OTE)?

On-target earnings (OTE) encapsulate the combined potential earnings an employee can achieve, merging their basic salary with achievable commissions. What does OTE mean in the realm of salary? It's an essential figure, offering a comprehensive outlook on what someone can earn in sales or performance-driven roles, assuming they hit their predefined targets. Essentially, OTE stands as the summation of guaranteed pay (basic salary meaning) and the incentive (commission) for reaching sales goals.

How Do You Calculate On-Target Earnings (OTE)?

To calculate OTE, you start with the basic salary—meaning the employee's fixed income—and add any commission expected from meeting performance objectives. Here, the basic salary is a crucial component, representing a fixed percentage of the total OTE, while the commission illustrates potential variable earnings based on achieving specific targets.

Imagine an employee with a basic salary that forms 80% of their total OTE, while the potential commission makes up the remaining 20%. For example, if the total OTE is projected to be £35,000, the basic salary would be £28,000 (80% of the OTE), and the commission would account for £7,000 (20% of the OTE). This breakdown helps clarify the 'on target' earnings concept, illustrating how the OTE salary comprises both guaranteed and performance-related pay, thereby providing a full picture of an employee's earning capacity.

Capped vs. Uncapped OTE

The distinction between capped and uncapped OTE is pivotal in understanding the flexibility and limits placed on earning potential within various roles.

Capped OTE Example: A Sales Executive has a basic salary of £25,000, with an OTE capped at £40,000. Despite achieving sales well beyond their targets, the maximum commission they can earn ensures their total earnings do not exceed £40,000. This cap is used for budget predictability but may limit the incentive for exceptional performance.

Uncapped OTE Example: Consider a Business Development Manager with a basic salary of £30,000 and uncapped OTE. Their earnings from commissions are unlimited, incentivising them to exceed sales goals significantly, with potential total earnings far surpassing the initial OTE projection.

Examples of Positions with OTE Compensation

Positions such as Field Sales Representatives, Account Managers, and Business Development Executives frequently include OTE in their salary packages. This compensation approach, where OTE salary plays a significant role, is prevalent in sectors where sales performance directly influences revenue. These roles illustrate the practical application of OTE, combining guaranteed income (basic salary) with performance-based rewards (commission).

FAQs

What does OTE mean in salary?

OTE, or on-target earnings, combines the basic salary and potential commissions an employee can earn by meeting or exceeding performance benchmarks. It represents the total compensation potential within performance-driven roles.

How is OTE calculated?

OTE calculation involves adding the basic salary to the expected commission based on sales targets, offering insight into the total potential earnings beyond the basic salary.

Why is understanding OTE important?

Understanding OTE and its implications is crucial for both employers and employees, serving as a motivational tool and aiding in clearer expectations and goals within performance-related pay structures.

In Givver, we understand the significance of offering competitive salaries to attract top talent. According to data from Levels.fyi, the average Sales salary range in the United Kingdom spans from £69,884 to £170,905, with variances influenced by factors such as location and company. At Givver,, we prioritise offering competitive compensation packages, and we frequently refer to resources like Levels.fyi, to ensure that our salary offerings remain competitive within the industry.