Competitiveness of On Target Earnings: The Core of Sales Compensation

by | Nov 18, 2022

Productivity is the key to success for any business in the current times. With various technological advancements and the rise in competition, businesses need to aim for maximum levels of productivity constantly. You can see companies integrating various tools like AI, cloud computing, bots, etc., to ramp up productivity, but very few understand the importance of employees’ morale and desire to perform better.

Employees are at the center of all operations making sure that your company achieves its goals on a timely basis. Therefore, it is equally important to focus on your employees’ motivation to meet their targets.

And what can be more effective than competitive On Target Earnings (OTE) for achieving sales quotas and boosting employee morale?

OTE is one of the best ways of boosting productivity if used strategically. You can induce competitiveness into your Sales Compensation Plan to keep your employees geared up over the long run.

What is On Target Earnings?

The On Target Earning is a compensation component that specifies all the earnings of an employee, including salary and variable components like sales compensations, bonuses, and other commissions if they achieve the desired goal. So, On Target Earning is basically calculated by adding up the basic salary along with sales compensation and bonuses of an employee.

Here’s the equation for On Target Earning calculation,

OTE = Annual Basic Salary + Annual commission earned at 100% target achievement

Types Of OTE

OTE is classified into two main types according to the designation of the employee.

  • Sales OTE:

Sales OTE is the plan for sales representatives and employees involved with sales processes. Sales employees usually have a target-based commission system for target achievement. So, whenever an employee achieves a set target, he receives sales compensation. Therefore, this is calculated by adding the basic salary to the possible extra earnings at 100% target achievement.

  • Executive OTE:

OTE for executives is calculated differently than the OTE for sales employees. Since executives don’t have direct involvement in sales, they do not have a direct sales target. Instead, the executives get an annual bonus and other incentives for overall team performance. So, calculation for Executives is done by adding the overall annual bonuses to the basic salary.

Key Components Of OTE

OTE has several key components that have to be planned well to get the most out of your plans. Here are the main focus points you need to consider for your plan.

  • Setting The Right Basic Salary:

Even though the sales compensation plan is a great tool to boost productivity, the basic salary is a very crucial component of the OTE. To get maximum benefits, you need to find the right balance between the Sales compensation and the base salary. For instance, if the base salary is too high, the employees may get satisfied with the base pay and may not look to achieve the targets. Similarly, if the basic payment is low, it can demotivate struggling employees and cause trouble with employee retention. So, the right balance is the key that pushes employees to aim for the targets and offers stability and employee retention.

  • Sales Compensation Targets:

The next component is the sales compensation plan. It is the extra incentive that employees receive when they achieve the targets. These targets have to be realistic so that the employees can achieve them. However, if they are too easy, the company can lose a large amount of money paying the high incentives to employees. So, targets have to be carefully planned so that they are achievable, but they must encourage the employees to perform better and better over time. The targets must also perfectly align with the company’s needs and market demands. So when the employees understand that they can get a very good annual OTE by achieving the targets, they’ll stay motivated to be more productive during working hours.

In simple words, OTE is a great tool that provides benefits on both ends. The company gets benefits via increased productivity, sales, and overall revenue generation. On the other hand, employees feel more motivated during work as they get handsome rewards for their performances.

How Competitiveness in OTE is the Core of Sales Compensation?

Having an element of competitiveness in your OTE plan is highly essential if you want to see a significant boost in productivity and retain your high performers. Competitiveness and rewards are much more motivating than mere monetary benefits. It connects the employees, pushes them to perform better than each other and also encourages them at the same time.

Here are some key benefits of having a competitive On Target Earning plan for your employees.

  • It boosts employee morale and pushes them to perform better.
  • Higher rewards for the top performers encourage the rest of the batch to perform better.
  • Creates a healthy competitive atmosphere where employees learn from each other to achieve targets better.
  • Helps employees maintain a motivated and energetic atmosphere at the workplace throughout the year.
  • Supports employees financially with better rewards for better performance
  • Overall sales boost, better customer engagement, higher revenue generation, and higher employee retention.

How to Create the Best OTE Plan?

One of the best options to develop a customized and optimized OTE structure is partnering with professional service providers. Professional service providers can provide you access to a wide range of benchmarking data, along with expert solutions to help you develop the best OTE and sales compensation plan for your company. 

You can purchase various tools such as incentive manager, quota manager, incentive health tracker, MBO manager etc. So, with professionals, you don’t only get mere calculating tools, but highly advanced tools that can calculate the overall health of your incentive plan. And in case there’s confusion you can contact the experts any time and get world-class solutions for your company.

Get the Right OTE for Maximum Productivity

As you can see, understanding the key components of OTE and developing a competitive sales compensation plan, can help you boost your employees’ productivity significantly. And then, why go through all the hassle when you can have professionals for the job?

So, all you need to do is get in touch with a top-class professional service provider for Sales Compensation Management solutions. That way, you can focus on other operations while the entire incentive and On Target Earning structure are taken care of by professionals.