70/30 pay mix
OTE: €100,000
Base salary: €70,000
Target variable pay: €30,000
The employee receives 70% of target compensation as base salary and 30% through the variable plan.
On-Target Earnings guide
On-target earnings (OTE): meaning, formula, examples, and pay mix
On-target earnings, or OTE, is the expected total cash compensation for a role when target performance is achieved.
It usually combines a fixed base salary with target variable pay such as commission, bonus, or another performance-based incentive.
OTE tells you the target earnings number. The incentive plan determines how the variable portion is actually earned.
Short answer
What is OTE?
OTE stands for on-target earnings.
It is the total cash compensation an employee is expected to earn when target performance is achieved.
The basic formula is:
OTE = base salary + target variable pay
If a role has a €70,000 base salary and €30,000 of target variable pay, the OTE is €100,000.
OTE is not the same as guaranteed salary. The variable portion depends on performance and the earning rules defined in the incentive plan.
Key takeaways
OTE in five points
OTE is target earnings
OTE represents the total cash compensation expected when target performance is achieved.
OTE normally has two parts
A fixed base salary and a target variable component.
OTE is not guaranteed salary
The variable portion still needs to be earned according to the plan.
Pay mix shows the split
A 70/30 pay mix means 70% of OTE is base salary and 30% is target variable pay.
Actual earnings can differ from OTE
Thresholds, accelerators, caps, attainment and other plan rules can result in earnings below or above OTE.
THE BASIC CONCEPT
How on-target earnings work
OTE gives a role a target compensation number.
For the employee, it answers:
What should I earn if I achieve the expected level of performance?
For the company, it helps connect fixed pay, variable-pay opportunity and performance expectations.
A sales role might have an OTE made up of base salary and commission.
A Customer Success role might combine base salary with variable pay linked to retention or expansion.
Another role might use company, team or individual bonus metrics instead.
The common principle is the same:
OTE defines the target earnings level. The incentive plan defines how performance becomes variable pay.
That distinction matters.
Two roles can both have €100,000 OTE while having very different pay mixes, targets and earning rules.
A 70/30 structure could mean:
- €70,000 base salary
- €30,000 target variable pay
A 50/50 structure could mean:
- €50,000 base salary
- €50,000 target variable pay
The OTE is identical.
The economics and risk allocation are not.
For the broader framework around base pay, variable pay, quota and incentive design, see Sales Compensation.
OTE FORMULA
How do you calculate OTE?
The basic OTE calculation is straightforward:
OTE = base salary + target variable pay
Example:
€70,000 + €30,000 = €100,000 OTE
You can also work backwards.
Target variable pay = OTE − base salary
If OTE is €100,000 and base salary is €70,000:
€100,000 − €70,000 = €30,000 target variable pay
The pay mix is then:
70% base / 30% variable
or simply:
70/30
Important
Target variable pay is the amount available at target performance.
It is not automatically earned simply because it is included in OTE.
The plan still needs to define what counts as performance, how the variable amount is calculated, and what happens below and above target.
WORKED EXAMPLES
Three OTE and pay-mix examples
60/40 pay mix
OTE: €100,000
Base salary: €60,000
Target variable pay: €40,000
The variable component represents a larger share of the target earnings.
50/50 pay mix
OTE: €100,000
Base salary: €50,000
Target variable pay: €50,000
Half of target compensation is fixed and half depends on the variable-pay rules.
These examples show the mathematics. They are not recommended market benchmarks.
The appropriate pay mix depends on factors such as the role, how directly the employee can influence the measured outcome, sales cycle, target design, company economics and the amount of earnings variability the company intends to create.
See OTE by role for a deeper look at how these design questions change across Sales, Customer Success and other roles.
TERMINOLOGY
OTE vs salary, commission, bonus, quota, and variable pay
These terms are related, but they answer different questions.
| Term | What it tells you |
|---|---|
|
Base salary
|
The fixed component of compensation |
|
Target variable pay
|
The variable amount available at target performance |
|
OTE
|
Total cash compensation at target performance |
|
Commission
|
One mechanism for turning sales results into variable pay |
|
Bonus
|
Variable pay linked to defined individual, team, company or other performance measures |
|
Quota or target
|
The performance level associated with the plan |
|
Pay mix
|
How OTE is divided between fixed and target variable compensation |
|
Incentive compensation
|
Performance-based pay used to reward results, such as commissions, bonuses, SPIFs, and KPI-based incentives. |
TARGET ECONOMICS
How quota and OTE connect
In a sales role, OTE often connects to a quota or another commercial target.
Consider this simplified example:
OTE: €120,000
Base salary: €72,000
Target variable pay: €48,000
Annual quota: €600,000
If the entire variable amount is earned through a simple commission on that quota, the implied target commission rate would be:
Target commission rate = target variable pay ÷ quota
€48,000 ÷ €600,000 = 8%
At 100% quota attainment, that simplified structure would generate €48,000 of variable pay and total cash earnings of €120,000.
But real plans are often less linear.
They may include:
- thresholds before payout begins;
- different commissionable bases;
- tiered rates;
- accelerators above target;
- caps;
- several compensation components;
- bonus or KPI components alongside commission;
- different earning or payment events.
This is why OTE, quota and commission rate should be modelled together rather than decided independently.
A plan can look reasonable at 100% attainment and produce very different economics at 50%, 120% or 200%.
Example scenario
Suppose the plan pays a flat 8% commission with no threshold, accelerator or cap.
At €300,000 of eligible sales:
€300,000 × 8% = €24,000 variable pay
Total cash earnings:
€72,000 + €24,000 = €96,000
At €600,000:
€600,000 × 8% = €48,000
Total cash earnings:
€120,000
At €720,000:
€720,000 × 8% = €57,600
Total cash earnings:
€129,600
The role can therefore earn more than OTE when performance exceeds target if the plan allows additional variable pay.
A plan with an accelerator, threshold or cap would produce different results.
Calculator
INTERACTIVE TOOL
Model an OTE scenario before you finalize the plan
Use the OTE calculator to test how base salary, target variable pay, quota, attainment, commission rates, accelerators and caps affect expected earnings.
You can compare scenarios below target, at target and above target before documenting the final rules.
What you can explore
- Base salary and target variable pay
- OTE and pay mix
- Quota or performance target
- Flat or tiered commission
- Accelerators
- Caps
- Attainment scenarios
- Expected earnings
PLAN DESIGN
What makes an OTE structure credible?
The OTE number is only useful when the assumptions underneath it make sense.
Before finalizing a structure, test five things.
-
01
Is the target credible?
The employee should have a plausible route to target performance.
A mathematically attractive OTE is not very meaningful if the associated quota or target is disconnected from territory, pipeline, customer base or role responsibility.
-
02
Can the employee influence the measured outcome?
Variable pay works best when the role has a credible connection to the result being measured.
The more indirect that connection becomes, the more carefully the company should consider the metric and the amount of compensation tied to it.
-
03
Are the earning rules clear?
Define what happens:
- below target;
- at target;
- above target.
If thresholds, accelerators, caps or several components apply, document them before the performance period begins.
-
04
Are exceptions defined?
Consider what happens when:
- someone joins during the period;
- a role changes;
- ownership changes;
- a target is adjusted;
- underlying data is corrected;
- the plan itself changes.
These questions are much easier to resolve when the rule already exists.
-
05
Can the result be explained?
Employees, managers, Finance and other reviewers should be able to understand how the result was produced.
That requires more than the OTE number itself.
It requires clear plan rules, source data, calculations, exceptions and review steps.
COMMON MISTAKES
Four OTE mistakes to avoid
| Mistake | Better approach |
|---|---|
|
Treating OTE as guaranteed salary
|
Separate fixed salary, target variable pay and actual earnings |
|
Setting OTE without testing the target
|
Model quota, attainment and payout economics together |
|
Copying the same pay mix across different roles
|
Consider what each role can actually influence |
|
Defining the OTE number but not the earning rules
|
Document eligibility, calculations, timing, exceptions and approvals |
BEYOND SALES COMMISSION
OTE can sit on top of different incentive models
OTE is commonly associated with sales compensation, but the target variable portion does not have to come from one specific mechanism.
Sales commission
Variable pay can be generated by sales results using defined commission rates, quotas, tiers or other commission rules.
Bonus
The variable component can be tied to defined individual, team or company outcomes rather than transaction-level commission.
Customer Success incentives
A commercially accountable Customer Success role may use retention, renewal or expansion measures as part of the variable compensation structure.
KPI-based variable pay
Other roles may use defined operational or business metrics where the participant can reasonably influence the measured result.
The OTE number can therefore look similar across different roles while the mechanism used to earn the variable portion is completely different.
This is one reason to separate:
target compensation → performance measure → calculation rule → payout process
instead of treating OTE itself as the incentive plan.
GO DEEPER
Explore specific OTE decisions
FROM PLAN TO PROCESS
OTE defines the target. The incentive process determines what happens next.
Once the compensation structure is agreed, the company still needs to apply the rules to real participants and performance data.
That can include:
- maintaining participants and effective dates;
- bringing in performance data;
- running calculations according to the defined rules;
- reviewing exceptions and adjustments;
- managing approval steps;
- giving employees and managers visibility into calculated results.
Bentega helps teams bring those activities into one governed incentive-compensation workflow rather than managing plan logic, calculations and review across disconnected spreadsheets.
The commercial design remains the company's responsibility.
Bentega helps operationalize the rules once they have been defined.
FAQ
Frequently asked questions about OTE
OTE means on-target earnings.
It is the total cash compensation a role is expected to receive when target performance is achieved. OTE usually combines base salary with target variable pay.
Use:
OTE = base salary + target variable pay
For example:
€70,000 base salary + €30,000 target variable pay = €100,000 OTE.
No. Salary normally refers to the fixed component of compensation. OTE includes both base salary and the target variable component.
A role can therefore have a €70,000 base salary and €100,000 OTE if €30,000 of variable pay is available at target.
No. OTE represents target earnings.
The base salary is the fixed component, while the variable amount depends on the rules of the incentive plan and the employee's performance against the relevant targets or measures.
Yes, if the incentive plan allows it.
For example, an uncapped commission structure or accelerators above target can produce actual earnings above OTE.
A capped structure may instead place a maximum on variable pay.
It can. In many sales roles, commission is the mechanism used to earn the target variable portion of OTE.
Other roles may use bonuses, KPI-based incentives, retention measures or other variable-pay structures instead.
There is no universal base-to-variable split that is right for every role.
The appropriate pay mix depends on factors such as the role's influence over measurable outcomes, target design, sales or performance cycle, company economics and the intended amount of compensation variability.
Use role-specific examples as a starting point rather than treating one split as a universal benchmark.
Quota or another performance target helps define what target performance means.
The variable-pay rules then determine how performance against that target becomes earnings.
In a simple commission structure, target variable pay divided by quota can indicate the commission rate required to reach OTE at 100% attainment.
More complex plans may use thresholds, tiers, accelerators, caps or several compensation components.
OTE normally refers to target cash compensation rather than the total value of every element of an employee's compensation package.
Companies should define clearly what they include in the term when communicating compensation.
NEXT STEP
Turn the OTE number into a workable compensation plan
Start by modelling the economics.Then document the rules behind the variable portion before the plan goes live.
On-target earnings (OTE): meaning, formula, examples, and pay mix | Bentega