What OTE means
OTE (on-target earnings) is total compensation at 100% quota attainment: base salary plus target variable compensation. It's a standard way to compare sales roles and sanity-check comp plans.
Core formulas
- OTE = base + variable (at 100% attainment).
- Commission rate (simplified) ~ variable / quota.
- Split = base / OTE (and variable / OTE).
- OTE to quota ratio = OTE / quota (sanity check for plan generosity).
OTE meaning salary vs target
- OTE is not guaranteed salary; it assumes 100% attainment.
- Actual pay varies with attainment, accelerators, and thresholds.
- Use OTE to compare roles, but verify payout curves and quotas.
From OTE to a commission plan (what to sanity-check)
- Align time units: annual OTE with annual quota (or quarterly with quarterly).
- Define what counts toward quota (bookings, ARR, revenue) and keep it consistent.
- Check payout timing and clawbacks; cash flow can differ from earned commission.
- If you use ramp or draw, model it explicitly so you do not overstate cost-of-sales.
Payout curve basics (why the average rate differs from the headline rate)
| Attainment band | Payout rate | Notes |
|---|---|---|
| < 50% | Often reduced or $0 | Some plans have thresholds |
| 50% to 100% | 1.0x | Core earnings zone |
| > 100% | 1.2x to 2.0x+ | Accelerators to reward over-performance |
Common mistakes
- Mixing annual OTE with quarterly quota (unit mismatch).
- Ignoring accelerators/decels and thresholds when comparing plans.
- Optimizing comp without checking CAC/payback and sales cycle constraints.
- Setting quota without validating pipeline capacity and win rates.
- Copying market OTE without matching your ACV and sales cycle reality.
- Ignoring base vs variable mix when hiring for new roles.