What a job offer
really pays
On-target earnings is one point on a curve, and the point almost nobody lands on. Put in the base and the commission at target to see the pay mix it implies and what the package pays across the range a real year lands in.
The part that arrives whatever happens.
The at-risk part. An offer that quotes only a total is hiding this number.
Optional. It is what turns the variable figure into an actual commission rate.
On-target earnings
$120,000
- Pay mix, fixed to variable
- 60% / 40%
- At risk if nothing sells
- $48,000
- Commission rate this implies
- 8%
What the package actually pays
Commission is modelled as a straight line with no accelerator, which understates the top of the range on most real plans. An accelerator above target would raise the last two rows. Nothing typed on this page is sent anywhere.
Two offers with the same OTE can be different jobs
The headline figure describes one point on a curve: pay at exactly 100% of quota. Almost nobody lands there. What decides the rest of the curve is the pay mix, the split between the salary that arrives regardless and the commission that has to be earned.
A $120,000 package at 80/20 puts $24,000 at risk. The same $120,000 at 50/50 puts $60,000 at risk. In a strong year the second package pays considerably more. In a weak one it is a mortgage problem. Comparing two offers on the headline alone compares the least informative number either company gave you.
Three questions worth asking before you accept the number
What is the base-to-variable split. An advert quoting only a total has left out the number that decides what the total is worth.
What share of the team hit quota last year. A $150,000 OTE where a fifth of the team attained is a worse offer than a $120,000 OTE where most of the team cleared target, and the second company will usually tell you the figure while the first will change the subject.
Is commission capped, and is there a windfall clause. A cap says the top of this curve is fiction above a certain point. A windfall clause says the company may rewrite a deal's commission if it turns out unexpectedly large, which is the same statement with more discretion attached.
What this model leaves out on purpose
Commission is drawn here as a straight line, so 130% of quota pays 130% of the variable component. Most real plans pay an accelerator above target, which would lift the top two rows. The straight line understates a good year rather than overstating it, which is the safer direction for a number someone might accept a job on.
It also ignores ramp. A new rep usually carries a reduced quota for a quarter or two, often with a guarantee underneath it, so first-year earnings can look nothing like the steady state in either direction. And it ignores when the money arrives, which for anyone paid quarterly on collected revenue is a question about cash flow rather than compensation.
- What does OTE mean?
- On-target earnings: the total a salesperson earns in a year if they hit their target exactly, combining base salary with the commission and bonus payable at 100% of quota. It describes pay at one specific performance level rather than guaranteed income, so actual earnings land above or below it depending on attainment.
- How do you calculate OTE?
- Add the base salary to the commission and bonus payable at 100% attainment. A rep on a $72,000 base whose plan pays $48,000 of commission at target has a $120,000 OTE. Working backwards from a quota gives the implied rate: $48,000 of variable against a $600,000 quota is an 8% commission rate.
- Is OTE the same as base salary?
- No. Base salary is the guaranteed portion that arrives whether or not anything sells. OTE is base plus the variable pay earned at target, so it is always the larger number and only part of it is guaranteed. The gap between the two is what the pay mix describes.
One rep on one page is
the easy version
Commish runs the whole team every pay cycle, against the plan you actually wrote, and shows the working on every line.