On-Target Earnings (OTE) salary: definition, tips & examples

Managing compensation for your employees can often feel like a puzzle. Between deciding on a base salary, commission structures, and total earnings packages, there’s a lot to consider. One of the more nuanced compensation approaches in sales organizations is the concept of On-Target Earnings (OTE). 

Some hiring managers may find it tricky to structure OTE pay in a way that motivates their sales team while attracting top talent. In this guide, we’ll walk through what OTE is, how it’s typically calculated, some pros and cons, and a few real-world examples of how OTE might look in different roles.

Below, you’ll find:

• What On-Target Earnings (OTE) means, how to calculate it, and key variables that affect it
• The difference between capped and uncapped OTE
• Benefits of using an OTE model and OTE considerations for employers
• Examples of OTE compensation in real-world positions

If you’re wondering things like, “What does OTE mean in sales?" or “How can I automate OTE pay in my organization?” this article has the answers. Let’s dive in.

What are On-Target-Earnings (OTE)?

On-Target Earnings (OTE) are a sales compensation structure where an employee’s earnings reflect a base salary plus expected commission or bonuses if they reach specific sales targets or performance metrics. OTE is popular in roles involving sales cycles, client acquisition, and closing deals, because these positions rely heavily on hitting a certain target or quota. When used effectively, OTE aligns a salesperson’s pay with their personal sales performance and the revenue they bring in.

OTE is a projected salary

One important fact about OTE is that it represents the projected total earnings for a salesperson if they meet all targets. Often, the OTE figure is the sum of a base salary plus performance-based commissions. This means the base salary is guaranteed, while the remainder relies on how well the sales rep meets or exceeds their sales goals or quotas.

An OTE salary can be capped or uncapped

An OTE package may come with a capped level of commissions, or it might be an uncapped commission structure. 

With a capped OTE, a salesperson has a defined maximum earning potential. Conversely, an uncapped commission structure allows sales reps to keep earning beyond their targets. Whether OTE is capped or uncapped can significantly influence employee motivation levels, as well as how reps approach their sales cycles.

OTE varies by industry

Not all sales roles handle the same quotas. Some industries have longer sales cycles and bigger revenue swings, which can make OTE higher but more variable. Others, such as software-as-a-service (SaaS), where account executives and sales development representatives (SDRs) may have shorter sales cycles, might set different incentives to motivate their sales reps. The nature of the product or service, plus market demand, often impacts the target structure of the compensation plans employers use.

OTE can change based on performance

An OTE model will almost always be influenced by how well someone can close deals or meet sales quotas. If a sales rep consistently exceeds their targets, management might adjust their base salary or the commission rate upward. Likewise, if sales quotas are not being met, a sales manager could reevaluate the structure or calculations behind target earnings. The fluid nature of OTE helps align motivation with performance metrics.

How do you calculate OTE in 4 steps

Calculating On-Target Earnings (OTE) involves determining the base salary for a salesperson, then deciding how much commission or bonus they can earn on top of that when hitting their specified quotas. 

Below is a four-step guide that many sales managers follow when calculating OTE:

Step 1: Identify the employee’s base salary

Any OTE plan starts by setting a base salary—this is the guaranteed amount of earnings the sales rep receives regardless of sales performance. 

For example, a sales representative might have a base salary of $50,000. Some employers decide on a lower base salary with a higher commission opportunity, while others prefer a more balanced base salary and commission structure.

Step 2: Set the target sales quota

Next, define the sales quotas or targets that the sales rep is expected to reach. 

For example, the target could be $500,000 in revenue over a quarter, or a certain number of closed deals per month. Sales quotas need to be achievable while still motivating the sales team to stretch their efforts.

Step 3: Define the company's expected goals

Before finalizing the OTE amount, clarify how this sales role ties into broader company targets. Are you pushing for more new business? Are you focusing on specific product lines? Or do you want to motivate your sales reps to upsell to existing clients for greater revenue? Clear metrics that tie directly to business revenues help ensure your compensation plans lead to the desired outcomes.

Step 4: Calculate OTE by adding base salary and incentives

Finally, calculate the OTE itself by combining base salary plus potential commission. 

For example, if an employee’s annual base salary is $50,000 and they earn an annual commission of $30,000 for hitting sales targets, their OTE would be $80,000. 

The exact calculation can vary depending on how you structure your compensation plans. Some roles have something like a 70/30 split (70% base salary, 30% commission), while others might be closer to 50/50.

Difference between capped and uncapped OTE

When setting target earnings, you can choose to place a cap on the commission that sales reps earn or let them continue earning beyond the target. Each model has its specific advantages and drawbacks.

Capped OTE pros

1. Stable compensation structure: With a capped OTE, sales reps have a predictable level of maximum earnings. Employers can more easily plan payouts and manage their finances.
2. Reduces burnout risk: Some sales professionals may benefit from a compensation model that doesn’t pressure them to exceed unrealistic sales targets constantly.
3. Promotes team collaboration: If a sales rep can’t surpass a certain threshold of commission, they’re sometimes more willing to help reps on their sales team, rather than hoard leads.

Capped OTE cons

1. Demotivates high performers: Placing a maximum on earnings can frustrate sales reps who can easily exceed their quotas. They might lose motivation once they hit that cap.
2. Limits earning potential: Some salespeople join companies specifically for the chance to earn significant commission. A cap can drive top talent elsewhere.
3. Talent retention struggles: High-performing sales professionals might feel stifled, seeking uncapped commission structures at other companies where their earnings are unlimited.

Uncapped OTE pros

1. Unlimited earning potential: Sales reps can make significantly higher earnings if they repeatedly exceed their sales quotas. This can motivate them to push harder.
2. Attracts high performers: When hiring, many sales managers use uncapped commissions to lure top talent who want to earn as much as possible.
3. Encourages overperformance: Knowing there’s no limit on commission can spur salespeople to close deals quickly and generate more revenue.

Uncapped OTE cons

1. Income instability: Without a ceiling, earnings can vary widely. Sales reps who have a bad quarter may struggle financially, especially if the base salary is low.
2. Potential for overwork: Sales reps might push themselves to the point of burnout in order to maximize commissions.
3. Budgeting challenges for employers: Sales compensation can skyrocket if reps greatly exceed their quotas, making compensation planning and financial forecasting trickier for employers.

Benefits of OTE

Offering OTE can create a healthier dynamic in your sales team and beyond. Below are several benefits:

Boost team motivation

Having a clearly defined OTE program can help motivate your sales reps, SDRs, and account executives to strive for specific quotas. The more they sell, the more they earn—this direct link between performance and earnings boosts motivation and accountability.

Enhance productivity levels

When sales professionals know their commission depends on measurable sales targets, they tend to streamline their efforts, shorten sales cycles, and focus on high-value prospects. This sense of urgency often leads to more revenue for the company, despite higher payouts for sales reps and SDRs.

Strengthens employee engagement

Knowing you can earn more by exceeding your targets fosters a sense of control and ownership over outcomes. As a result, salespeople feel more engaged because they see a direct correlation between their effort and compensation.

Attracts top talent

Hiring managers looking to fill roles with ambitious sales professionals can use enticing OTE packages to stand out in a crowded job market. Sales reps and SDRs with a proven track record of hitting (or surpassing) sales goals love the possibility of higher earnings, and may gravitate toward roles where they can earn more from OTE.

Drives performance-based culture

A well-designed OTE structure is a clear signal that you reward sales performance, not just seniority or tenure. This fosters a culture where targets are front and center, motivation is consistent, and high performers feel valued and acknowledged.

5 considerations for employers about OTE salary

Before rolling out an OTE structure, it’s wise to keep several variables in mind. This helps keep your compensation plans fair, transparent, and aligned with real business objectives.

Compensation balance

Balancing base salaries and commissions is key. If the base salary is too high, reps might get complacent about their sales targets. If it’s too low, they may feel insecure about their finances. In either case, the wrong ratio could dampen the intended motivation.

Capped vs. uncapped earnings

Decide early whether to limit earnings or allow reps to exceed their OTE. If you aim to motivate unstoppable sales reps, an uncapped commission structure can be more appealing. Conversely, companies with limited budgets might prefer a capped approach for more predictable payouts.

Achievability of OTE

Make sure your quotas and targets are tough but not impossible. If your sales manager sets sky-high sales quotas, the sales reps might never reach them, leading to frustration and high turnover. Striking that balance keeps morale high and makes your OTE structure more effective overall.

Industry and market standards

Some industries have standard OTE structures that potential hires expect. For example, SaaS sales often involve an 80/20 or 70/30 split of base salary vs. commission. Investigate the norms in your sector and shape your plan accordingly to stay competitive when hiring.

Clear and transparent commission structure

Spell out how you track progress toward targets, how you do the calculations, and when bonuses are paid. Sales reps should know exactly what they need to achieve for their full target earnings. Transparency will prevent disputes and keep your sales team focused and motivated.

3 OTE compensation examples from real-world positions

A variety of sales roles use OTE. While these examples are not definitive for every market or region, they illustrate how base salary plus commission might look in different positions.

Account Executive

Account executives handle complex sales cycles with multiple stakeholders. 

If an account executive has an annual base salary of $60,000 and an annual commission plan that lets them earn another $40,000 by hitting all their targets, the total OTE is $100,000. In many companies, account executives can exceed their total OTE if they surpass their sales quotas (meaning they have uncapped OTE).

Sales Manager

A sales manager usually oversees several reps and sets overall sales targets. 

A typical sales manager might have a $70,000 base salary plus $30,000 in commission for leading the sales team to specific quota achievements. Their target earnings then land at $100,000 in total. If the team outperforms the quota, the sales manager can earn additional bonuses (meaning their OTE is uncapped).

Director of Marketing

While not traditionally considered a sales role, some organizations tie marketing outcomes to revenue. 

A Director of Marketing might have a $90,000 base salary and $30,000 worth of OTE based on lead generation metrics that translate into pipeline sales for the sales team. Their combined earnings would be $120,000 if they hit their targets.

Automate OTE payments with Rippling

If you want payroll so powerful it runs itself, you want Rippling. Rippling offers full-service payroll built on top of a single source of truth for employee data. That means your employee data isn’t tied to one specific app—it’s the same across payroll, time and attendance, onboarding, performance management, and any other apps you use within our unified platform.

Rippling Payroll is intuitive, easy to use, and has a 100% error-free guarantee on every pay run. It also offers 600+ integrations, automatic and accurate tax registration and filing, and a dedicated mobile app where your employees can view their W-2s and paystubs, submit expenses directly, and more. 

With Rippling, you can:

• Pay employees and contractors in the same platform
• Manage time and attendance natively 
• Run unlimited off-cycle pay runs at no extra cost 
• Set up multiple pay schedules, pay rates, and pay types in just a few clicks. Choose default pay types, like tips or bonuses, or customize your own, like OTE salaries, on a one-off or recurring basis.
• Add recurring reimbursements (like cell phone payments, gym memberships, etc.) that are automatically paid out every pay period, monthly, or at whatever interval you choose
• Automatically calculate prorated pay runs for new or promoted employees 
• Manage all currency conversions, including payroll adjustments 
• Automatically calculate overtime for every country 
• Make changes after submitting payroll

OTE meaning FAQs

What does OTE mean for salary?

When you see OTE in a job description, it refers to On-Target Earnings, which combine a base salary with additional commission or bonuses. The idea is that if the sales representative meets specific quotas or sales goals, they’ll reach that stated target of total compensation.

What does $120k OTE mean?

A $120k OTE means that the employee has a base salary plus commission or bonuses that could total $120,000 in earnings if all targets are met. This figure is not always guaranteed, but it’s presented as the target earnings for the role.

What is a $100,000 OTE?

A $100,000 OTE means the salesperson has a compensation package potentially reaching $100,000 in total if they fulfill their quotas. Part of this amount is the base salary, and the rest is performance-based commission or bonuses.

What’s the difference between OTE and a bonus?

OTE includes both base salary and the performance-based portion of your earnings. A bonus is typically a one-time or periodic payout for achieving certain metrics. OTE is a broader concept that outlines your projected earnings at target performance, which can include multiple bonus and commission components.

This blog is based on information available to Rippling as of March 4, 2025.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.