On-target earnings explained: OTE vs base salary, quotas, and accelerators

Definition

On-Target Earnings (OTE) refers to the total expected annual compensation for a sales or quota-carrying role if the individual hits 100% of their goals (usually their quota).

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It’s the sum of:

OTE = Base Salary + Variable Pay (commission, bonus, etc.)

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Think of OTE as the “theoretical full paycheck”, what the company is prepared to pay when performance meets expectations.

Why OTE matters

For employees: Sets expectations on total annual earnings if they perform.
For employers: Standardizes compensation planning across roles and territories.
For recruiters: Helps compare offers transparently across industries or geographies.
For finance/sales leadership: Anchors performance-to-cost metrics like CAC payback and revenue-per-rep.

Example: Mid-market SaaS AE

Component	Amount (USD)
Base Salary	$90,000
Variable (Commission)	$90,000
On-Target Earnings (OTE)	$180,000

If the rep hits 100% of quota (say, $300K in new ARR), they earn the full $180K.
If they hit 120%, they may earn more through accelerators.
If they hit 50%, they earn just the $90K base + a portion of commission.

Common OTE structures by role

Role	Typical OTE split
SDR	70% base / 30% variable
SMB AE	60% base / 40% variable
Mid-Market AE	50% base / 50% variable
Enterprise AE	50/50 or even 40/60 in high-risk, high-reward environments
CSM (with quota)	70% base / 30% variable or 60% base / 40% variable

OTE vs other comp terms

Term	Definition
Base salary	Fixed pay, guaranteed
OTE	Base + full variable, if targets are hit
Realized earnings	Actual earnings based on performance
Accelerators	Higher commission rates beyond the 100% quota attainment
Decelerators	Lower commission rates for <50% quota attainment
Quota	The revenue or goal target tied to OTE payouts

Best practices when using OTE

Practice	Why it matters
Keep it simple	Reps should easily calculate earnings vs quota
Benchmark by role & region	OTE varies by segment (SMB vs enterprise) and by geography
Be transparent in hiring	Disclose split, quota expectations, and ramp periods
Use accelerators to drive overperformance	Top reps expect and optimize for upside
Align OTE with realistic quotas	If fewer than 50% of reps hit quota, OTE is theoretical, not motivational

Common pitfalls

OTE offered without a realistic quota is demotivating
Overemphasis on OTE without clarity on commission structure or time to ramp
Changing OTE mid-year without communication leads to trust erosion

Final takeaway

On-Target Earnings is the contract of trust between the company and the seller. It sets the tone for performance, fairness, and motivation. A well-calibrated OTE attracts great talent, retains performers, and drives consistent, predictable revenue if tied to achievable, data-backed goals.

GPT prompt: Design a compensation plan around OTE

Copy

Act as a sales leader hiring your [enter type of role (AE, for eg) and number of openings] for a [enter ARR] SaaS company. You want to offer a competitive OTE with clear upside for overperformance. Draft a compensation structure that includes base salary, variable tied to [enter quota amount], accelerator bands, and payout timing.

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