On-Target Earnings

What Are On-Target Earnings?

On-Target Earnings (OTE) is a term used to describe the total potential earnings an employee can expect to receive if they achieve all specified performance targets. Commonly used in sales and other performance-based roles, OTE combines base salary with variable components such as commissions or bonuses that depend on meeting or exceeding specific goals.

Key Features of On-Target Earnings

  • Combination of Fixed and Variable Pay: OTE includes both a guaranteed base salary and variable pay based on performance.
  • Performance Metrics: The variable component of OTE is tied to specific performance metrics or targets.
  • Transparency: Clear communication of how OTE is structured and what targets must be met to achieve it.
  • Motivation Tool: Serves as an incentive for employees to reach or exceed their performance goals.

How Do On-Target Earnings Work?

  1. Setting Targets: The organization sets clear performance targets that employees need to meet or exceed to earn the variable component of their compensation.
  2. Compensation Structure: The OTE amount is communicated to employees, detailing the split between base salary and potential earnings from commissions or bonuses.
  3. Performance Tracking: Employee performance is tracked against the set targets throughout the performance period.
  4. Payout: If targets are met, employees receive the variable component of their compensation, achieving their OTE.

Best Practices for Managing On-Target Earnings

  • Clarity and Transparency: Clearly communicate the OTE structure, including how targets are set and how variable pay is calculated.
  • Realistic Goal Setting: Set achievable targets that challenge employees but are realistic based on market conditions and individual capabilities.
  • Regular Updates: Provide employees with regular updates on their performance against targets to help them stay on track.
  • Fair and Consistent Application: Ensure the OTE structure is applied fairly and consistently across all eligible employees.


Only the base salary component of OTE is guaranteed. The variable pay depends on meeting specific performance targets.

Yes, companies may adjust OTE based on changes in market conditions, business goals, or job responsibilities.

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