What is on-target earnings?
The meaning of On-target earnings (OTE) refers to a key component of an employee’s pay structure. This is a variable component of pay which is calculated according to the sales and performance targets achieved by the employee. It is alternatively termed as commission, incentives, or on-track earnings.
On-target earnings compensation is common in sales-related jobs. It serves as incentive to sales personnel to achieve high targets by guaranteeing a commission on the amount of revenue generated.
What are the benefits of on-target earnings (OTE)
Here are some reasons companies use On-target earnings as a sales compensation model:
1. Employee motivation
By giving employees a clear understanding of targets they need to hot to get rewarded for their efforts, they will feel motivated to work harder and achieve better results.
2. Higher productivity
The stimulation of incentives will encourage employees to put more effort into fulfilling their tasks, which will raise their productivity.
3. Organizational growth
The rise in productivity and the encouragement to do a quality job will lead to greater organizational performance growth.
What is a good on-target earning?
As we know that the meaning of on-target earning refers to an employee's pay structure made of basic salary and the additional variable component such as commission as their compensation. On-target earnings (OTE) differs according to industry, complexity of the job, the experience level of the employee, and the targets set by management. The general rule of thumb, however, is one-fifth of the sales targets. For instance, if a sales representative’s annual target is $700,000, their On-target earning would be $140,000.
However, this ratio is just a suggestion and not a guideline. A salesperson’s salary may vary on the competitiveness of the industry, the knowledge and experience of the salesperson, the complexity of the sales process, the company’s revenue, and so on.