What is OTE (On-Target Earnings)?

Posted by GradConnection

During their job search, graduates may come across something called “OTE”. “OTE” stands for On-target Earnings and is typically associated with roles that measure performance and adherence to targets, quota, or revenue. This article will provide important information on what OTE is, what industries it is associated with, its benefits, and how to calculate it. This information can allow graduates to make informed decisions on whether a graduate position providing OTE is right for them.

What is OTE?

OTE, or on-target earnings or on-track earnings, is the potential earnings a graduate can earn if they successfully meet performance targets associated with their role. OTE is the maximum salary amount that a graduate can make as long as they adhere to their targets. This is commonly the payment type offered in jobs where graduates are required to meet sales quotas or key performance indicators. 

Under an OTE salary system, pay mix is the combination of the fixed salary that is guaranteed by the employer regardless of performance and the OTE amount that is based on meeting performance targets. For example, a 70/30 pay mix for a salary advertised as $100,000 OTE means that the employee will earn $70,000 annually with the potential to earn up to an additional $30,000 if they meet all their performance targets. They will receive a segment of the $30,000 that is proportionate to their achievement of the targets set for them by the company. Most importantly, a graduate will only receive the full OTE amount if they successfully meet 100% of their targets. Thus, OTE requires serious thought and consideration as graduates must be willing to work extra hard to adhere to the goals set to them by their manager or supervisor. 

How is OTE paid?

Typically, the base rate salary amount is paid weekly, fortnightly, or monthly, depending on the pay cycles of the company. The compensatory amount based on performance is paid in one lump sum annually. Ultimately, the pay structure will depend on the company and the role.

What is the benefit of OTE?

The main benefit of OTE for graduates is that it provides a financial incentive to become more engaged, dedicated, and productive in the workplace. Similarly, employers are benefited as OTE encourages an increase in performance and assures a level of quality control in productions and operations. 

What industries use OTE?

OTE is used in a variety of industries and is typically employed by companies that require their employees to meet performance targets. Certain professions are more likely to use OTE, including the following:

  • Sales
  • Retail
  • Finance
  • Marketing
  • Real Estate

How to calculate OTE?

It is useful for graduates applying for a role that includes an OTE salary to be able to calculate their income for themselves. While an OTE amount may look attractive on paper, completing these calculations can allow a more realistic and accurate impression of the guaranteed salary and performance amount associated with the role. Here are the steps to follow to calculate OTE.

Step 1: Identify the Base Rate

The base rate is the fixed salary that you are guaranteed to receive for completing the obligations and requirements of a role regardless of your ability to hit your targets. It is important for you to identify this amount and determine whether it is a suitable salary by itself. This is because irrespective of the OTE, personal or professional issues may arise during your employment at the company and under the salary package which may prevent you from dedicating the time and effort to hitting your targets. In this way, you must be able to live on the base rate. 

Step 2: Identify the Targets

Next, you should take the time to comprehensively review the targets and objectives that you must meet to receive the OTE. This is important as you may find that the targets are not attainable or unreasonable. This can allow you to make a well-informed judgement on whether an OTE salary is the best decision for you. Ensure that you are clear about the expectations of the role with your employer so that you are well-positioned to meet the targets.

Step 3: Identify the Compensation

Consider the amount that you are likely to receive for the targets that you reach. This means assessing whether the compensation offer is sufficient remuneration for the goals that you are expected to achieve. You may find that the compensation is disproportionate to the difficulty or complexity of the target that you are required to fulfil. 

Step 4: Calculate the OTE

You can calculate the OTE by adding the fixed salary amount with the compensation amount. It is important to keep in mind that you may not receive the entirety of the compensatory amount. This additional sum will be dependent on your performance. 

What to consider before accepting OTE?

Deciding to accept an OTE salary for a graduate position is an important decision. Here are some factors to consider to ensure that you make the right choice for you, your lifestyle, your career aspirations.

Can I meet these goals?

You may find that the goals are unrealistic for you to achieve in a certain period of time. They may even be impossible for you to accomplish alone. If you are unsure on the realisticness of the goals, you can always ask your potential supervisor or the hiring manager about the success rate of employees at achieving their targets and receiving their OTE. 

Can I exceed the OTE?

This means whether the OTE is capped or uncapped. A capped OTE means that there is a set maximum amount that you can earn. An uncapped OTE means that you can earn as much as you can based on your performance. You can ask the interviewer whether there is capacity for you to exceed the OTE. This will not only show the interviewer that you are a dedicated, committed and hardworking employee, but it could also provide you with further motivation to exceed the targets set by the company.

What pay mix is offered?

The proportion of the base rate and the compensatory rate is important. The base rate should be a sufficient enough salary amount. The pay mix may be that the majority of your salary will come from a compensatory assessment of your fulfilment of the targets. If you undergo personal or professional obstacles that prevent you from meeting the goals, you may be unable to live on the base rate. This is therefore a crucial question to ask the interviewer or the hiring manager before you accept the job offer, especially if the job listing neglected to provide that information.

Find out more about what graduate salary you can expect for your discipline here.


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