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 (OTE) is the total cash compensation an employee can expect when target performance is achieved. It usually combines a fixed base salary with target variable pay, such as commission or a performance bonus.
OTE gives you the target earnings figure. To understand the opportunity, you also need to know the pay mix, the performance expected and the rules for earning the variable portion. This guide explains how those elements fit together, with formulas, worked examples and tools for testing your own scenarios.
Short answer
What is OTE?
OTE stands for on-target earnings: base salary plus the variable compensation available at target performance. A role with €70,000 in base salary and €30,000 in target variable pay therefore has €100,000 OTE.
The variable portion must still be earned under the incentive plan. Actual earnings can be lower or higher depending on performance, thresholds, accelerators, caps and other applicable rules.
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 helps a company explain what a role should earn when the employee delivers the expected performance. For the employee, it provides a starting point for understanding the compensation opportunity. For the company, it connects fixed pay, variable-pay opportunity and performance expectations.
The variable portion can be earned in different ways. A salesperson might receive commission on eligible sales, while a Customer Success employee earns a bonus linked to retention and expansion. Another role may use company, team or individual objectives. The OTE figure can be similar even though the responsibilities and calculation rules differ.
Two roles offering €100,000 OTE can also have different pay mixes. A 70/30 arrangement provides €70,000 in base salary and €30,000 in target variable pay. A 50/50 arrangement provides €50,000 of each. Both reach the same total at target, but a larger share of earnings depends on the incentive plan in the second arrangement.
For the wider framework connecting base pay, variable pay, targets and incentive design, explore our sales compensation guide.
OTE FORMULA
How do you calculate OTE?
The basic OTE calculation is straightforward:
OTE = base salary + target variable pay
Add the base salary and target variable pay for the same period. A role with €70,000 in annual base salary and €30,000 in annual target variable pay has €100,000 OTE.
Example:
€70,000 + €30,000 = €100,000 OTE
You can also work backwards.
Target variable pay = OTE − base salary
You can also work backwards from the total. If annual OTE is €100,000 and base salary is €70,000, the target variable opportunity is €30,000. Base salary represents 70% of OTE and target variable pay represents 30%, giving a 70/30 pay mix.
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
Target variable pay must be earned
Target variable pay describes the amount available at target performance. The incentive plan must define which results count, how they are measured and how they become earnings. It should also explain what happens below and above target, including any thresholds, accelerators or caps.
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 illustrate the maths, rather than recommended pay mixes. The right balance depends on how much influence the employee has over the outcome, how performance is measured, and how much income uncertainty the role can reasonably carry. Our guide to structuring OTE for Sales, Customer Success and Marketing explores how those decisions change between roles.
A role with substantial dependence on other teams or a long ramp period presents different conditions from one where the employee directly controls a shorter sales process. Consider those conditions alongside the target itself when deciding how much compensation should be variable.
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, quota helps define the performance associated with OTE. Consider a role with €120,000 in annual OTE, consisting of €72,000 in base salary and €48,000 in target variable pay. Its annual quota is €600,000.
If the entire variable amount comes from a flat commission on eligible sales, dividing €48,000 by €600,000 gives an implied commission rate of 8%. This assumes that quota and commissionable sales use the same basis, with no thresholds, accelerators, caps or other adjustments.
Target commission rate = target variable pay ÷ quota
€48,000 ÷ €600,000 = 8%
At 100% quota attainment, this simplified model produces €48,000 in commission and €120,000 in total earnings. More complex plans may combine several components, use a different commissionable basis or change payout rates at defined performance levels.
OTE, quota and calculation rules should therefore be tested together. A plan that looks reasonable at target may create quite different earning opportunities and company costs below or above it.
Example scenario
Suppose the plan pays a flat 8% commission with no threshold, accelerator or cap.
| Eligible sales | Quota attainment | Commission at 8% | Base salary | Total earnings |
|---|---|---|---|---|
| €300,000 | 50% | €24,000 | €72,000 | €96,000 |
| €600,000 | 100% | €48,000 | €72,000 | €120,000 |
| €720,000 | 120% | €57,600 | €72,000 | €129,600 |
The employee earns more than OTE at 120% attainment because commission continues above target. These results assume a flat 8% rate throughout. An accelerator, threshold or cap would change the outcome.
In a SaaS business, the calculation also depends on what counts towards quota. Annual recurring revenue, total contract value and collected revenue can produce different results from the same customer agreement. Our guide to OTE in SaaS explains how recurring revenue, contract terms, retention and expansion affect the structure.
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?
A credible OTE gives employees a plausible route to the earnings being presented. Market data can help establish whether the package is competitive, but it cannot tell you whether your quota is achievable or your payout rules make sense. When benchmarking OTE, compare equivalent roles and separate the headline number from the conditions required to earn it.
-
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 often associated with sales roles, but its variable portion can come from several incentive arrangements. The relevant mechanism depends on the responsibilities of the role and the results the company wants to reward.
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.
Similar OTE figures can therefore sit above quite different plans. Compare the target compensation, the performance measures and the calculation rules together, then consider how earnings are reviewed, approved and paid. The OTE number gives one part of that picture.
GO DEEPER
Explore specific OTE decisions
FROM PLAN TO PROCESS
OTE defines the target. The incentive process determines what happens next.
Once the compensation arrangement is agreed, the company needs to apply it to real participants and performance data. Effective dates, calculations, exceptions and approvals all affect whether the arrangement works consistently in practice.
OTE remains the target earnings reference. Calculated incentives, approved amounts and recorded payments describe different stages of the process and should remain distinguishable.
Employees also need to understand the connection between their work and their earnings. A headline OTE figure leaves too much unanswered unless people can see what counts, how payouts are calculated, and when earnings become payable. Our guide to communicating OTE to employees explains how to make those details clear through practical examples.
Bentega brings incentive rules, performance data, calculations and approvals into a connected workflow, with visibility for employees and relevant managers.
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