What are on-target earnings?
On-target earnings 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.
OTE is a common form of compensation 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.
Benefits of on-target earnings
Here are some reasons companies use OTE 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?
On-target earnings 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 Seles representative’s annual target is $700,000, their OTE 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.