As an employer, you may already know what ‘OTE’ means and use it to structure salaries in your business. Alternatively, you may wonder what the best compensation options are to motivate your employees and are considering an OTE approach. Either way, it’s a good idea to refresh yourself on what exactly is the OTE meaning for salaries, employers, and employees.
TABLE OF CONTENTS
- What Does OTE Mean?
- What is the Difference between Capped and Uncapped?
- OTE meaning for Employers
- How Factorial Can Help Employers Navigate OTE
- Get a FREE demo of Factorial’s all-in-one HR management tool
What Does OTE Mean?
OTE means ‘on-target earnings’ or ‘on-track earnings’. When OTE appears in job adverts or job descriptions, it indicates the projected salary someone can earn if they meet the targets in the role.
The amount paid to an employee who meets the targets set for them can be a percentage of the company’s commission, a lump sum payment, or a combination of both.
An OTE salary is used when commission is part of the pay structure for a role. Employers often use OTE salaries for sales, retail management, or marketing roles. In these cases, the salary an individual or team earns is related to the revenue they bring into the business.
It is also common to see OTE salaries used for leadership roles, where organisations want to incentivise a senior employee to achieve strategic goals.
How is an OTE Salary Calculated?
An OTE salary is based on two factors:
- Base salary: the guaranteed portion of the employee’s pay, regardless of how they perform in the role.
- Variable salary: the portion of the employee’s pay the employer calculates using the commission structure and any other incentives designed to help the employee achieve specific targets.
What is the Difference between Capped and Uncapped?
A capped OTE salary has a set maximum amount that an employee can earn from the variable part of the salary. While this approach helps companies control their costs, it can be demotivating for employees who easily reach their targets.
An uncapped OTE salary has no set maximum amount that an employee can earn from the variable part of the salary. This approach can be an effective tool for incentivising employees to earn as much as possible for themselves and the company, but it can also make it harder for companies to budget.
Does OTE Include Base Salary?
Yes, an OTE salary includes a base salary. A base salary is a guaranteed amount of pay which is not linked to targets.
Examples of OTE in Sales
Some examples of OTE salaries in sales roles are:
Entry-Level Sales Representative
Someone taking on their first role in a sales team might receive a base salary of £25,000 per year. As they are in a sales role, they are set monthly revenue targets. If they meet all the targets set for them, they can earn an extra £7,500. If they partially meet the targets, they can earn an extra £4,000. In this instance, their OTE salary is £32,500.
Business Development Manager
A business development manager is likely to have experience in the field and their base salary could be £40,000 per year. As their role depends on developing existing relationships to bring in additional revenue or securing new clients, they may have a pay structure that provides a bonus or lump sum for bringing in a specific number of new clients. For example, this bonus could be capped at £30,000, making their OTE salary £70,000.
Estate Agent
Salaries for estate agent sales roles are closely linked to the number of property sales or rental agreements made. As a result, the base salary for these roles can be low—for example, £20,000. However, the total amount an agent can earn will be linked to the commission paid on the properties sold, creating a much higher earning potential. The commission earned may also increase if the individual takes on managerial roles within the agency.
OTE Meaning for Employers
Employers often find that an OTE pay structure is a beneficial compensation management system for the following reasons:
- Helps to attract ambitious candidates who are motivated by performance-based incentives
- Leads to better results for the company
- Provides clarity for the employee about what they will receive in their pocket and why
When setting an OTE pay structure, it is helpful to consider the following suggestions:
- Be Transparent
Clearly define the base salary and how the variable salary is calculated to avoid confusion or disputes with employees. Employers may calculate variable salaries using a tiered approach and apply different calculations for individual and team performance. They should communicate these details in an accessible and easy-to-understand format to help employees digest the information.
- Be Fair
The targets set for employees that are used as a basis to calculate their variable pay need to be fair and achievable. If the goals are not reasonable and realistic, there is a higher chance that employees will be demotivated and the OTE pay structure can have the opposite effect from that intended by introducing an OTE structure.
- Be Legal
Any targets set for employees as part of a variable pay structure can be considered false or misleading advertising if they are unrealistic. Likewise, the national minimum wage requirements can have legal implications: employees must be paid the basic wage regardless of whether that comes from a commission structure or not.
How Factorial Can Help Employers Navigate OTE
Do you think OTE is a good fit for your business model? Or are you struggling to navigate the current OTE structure at your company? Factorial can help you simplify the OTE structure and enhance your compensation schemes using two tools.
Factorial’s Payroll Process
Our payroll process can simplify and automate the process of paying your employees, providing clear payslips so employees fully understand how their pay is structured. Utilizing Factorial’s payroll software can bring these benefits to your company:
- Access to data: You will have immediate and easy access to any financial data within this field whenever you need it. This will be much quicker than having to contact an outside source to find the information for you.
- Accuracy: Payroll errors are common and can be messy to clean up. Yet experts are adept in making sure they don’t happen in the first place. They also have a deeper understanding of laws, taxes and regulations surrounding payroll, which means you don’t need to have this expertise in the company.
- Time-saving: By outsourcing this work, you free up this time for other pressing business matters.
Factorial’s OKR Software
Secondly, our OKR software tracks employee and company goals, so you can quickly and easily determine whether employees have met their targets. Making OTE salary calculations easier and quicker than ever before. Moreover, OKR software ensures you meet your objectives without sacrificing the quality of your work. Some additional benefits to Factorial’s OKR software include:
- Improve performance: With all your OKRs and progress located in one centralised platform, you can quickly identify areas of improvement, capitalise on opportunities and understand what is going well for your company.
- Stay ahead of the competition: A high-performing, successful business ensures your company delivers quality service. Factorial’s software helps you stay competitive by streamlining processes, improving efficiency, and enhancing employee management. With powerful features like automated workflows and real-time insights, you can make data-driven decisions that drive growth and maintain a competitive edge in your industry.
