What is OTE, and what nobody tells you about it

I have been paid on an OTE for most of fifteen years. I have hit 201% of target and I have had quarters where the variable half was worth almost nothing. Both of those were the same job with the same number printed on the same contract.

The definition, and then the useful part

Base salary is what arrives whether or not anything goes well. Variable pay is commission or bonus, earned against a target. Add the base to the variable at exactly 100% of target and you get the OTE.

So £90,000 OTE on a 50/50 split means £45,000 of salary and £45,000 you have to go and get. Every definition of OTE on the internet says this much. Here is what they leave out.

OTE is a forecast, not a salary

The number in the advert is what a person on target earns. It is not what the average person in that seat earned last year, and companies are not required to tell you the difference.

This matters most when you are comparing two offers. A higher OTE with a bigger variable share and a quota nobody hits pays less than a lower OTE with a real base. The bigger number can be the worse job, and it usually looks better in the advert precisely because it is.

The six things to check before you sign

In order of how much money each one is worth, which is roughly the reverse of the order people ask about them.

1. The split. What is base and what is variable. This is the only part that tells you what you are actually guaranteed.
2. What percentage of the team hit target last year. Ask it exactly like that. A vague answer is an answer.
3. Whether the upside is capped. A cap means the company keeps everything above a line you are not allowed to cross.
4. What happens above target. Accelerators are where most of the real money in a good year comes from. It is also where the difference between two similar-looking offers hides.
5. When it pays, and what claws it back. Monthly, quarterly, on invoice or on cash collected. Clawback on churn or on a refund.
6. Whether the quota moves and who moves it. A target that resets upward after a good year is a pay cut with extra steps.

The part that is actually negotiable

Almost everybody negotiating an offer argues about the base. It is the hardest number to move, because it sits inside a band that somebody in finance has already approved.

The shape of the variable is far easier to change. It is also worth more. Nobody has to approve a raise, because you are only asking to be paid more once the company has already made more. That is the easiest version of this conversation there is.

What OTE means for what you keep

One thing that catches people moving into a variable role for the first time. Commission is taxed as income. A large payment in one month can push you into a higher band for that month, even when the year evens out.

And the number on the offer is not what your employer spends on you either. Depending on the country, that figure sits 11% to 34% above your gross before anything reaches your account. You can see what it is where you live in the country calculator.

Questions people actually ask