Sales compensation explained: how OTE, quota and attainment fit together

Sales compensation is the only part of a job offer that comes with its own vocabulary and its own maths. Most people who receive an offer read the OTE, compare it with the last one, and sign. Most people who design a plan copy last year's and change the numbers. Both approaches leave money on the table, and both regularly produce plans that reward the wrong behaviour.

This is a plain explanation of the building blocks, how they interact, and the questions that reveal what a plan is really worth.

The vocabulary

OTE (on-target earnings) is base salary plus the variable pay you receive at exactly 100% of quota. It is a target. Nothing about the number tells you how often it is reached.

Pay mix is the split between base and variable, written as base/variable. A 50/50 mix on a 200,000 OTE means 100,000 base and 100,000 variable at target.

Quota is the amount of revenue, bookings or another measure a rep must produce in a period to earn the variable portion in full. It can be annual, quarterly or monthly, and it can be measured in new ARR, total contract value, gross margin or units.

Attainment is quota performance expressed as a percentage. A rep who books 900,000 against a 1,000,000 quota is at 90% attainment.

Commission rate is the percentage of each deal paid out. If variable pay at target is 100,000 and quota is 1,000,000, the base commission rate is 10%.

Accelerators raise the commission rate above a threshold, usually 100% of quota. A plan might pay 10% up to quota and 15% on everything after.

Decelerators lower the rate below a threshold, for example 5% on deals booked while a rep is under 50% attainment.

Draw is an advance on future commission, common in ramp periods. A recoverable draw must be paid back from later commission; a non-recoverable one is effectively a temporary base increase.

Clawback is the company's right to take back commission on deals that churn, fail to pay or shrink within a period.

SPIF is a short-term bonus for a specific behaviour, such as selling a new product line this quarter.

How the pieces relate

The single most useful ratio in comp design is quota to OTE. If quota is 1,000,000 and OTE is 200,000, the ratio is 5x. In software sales, ratios in the range of roughly four to six times are common for account executives, though they vary with deal size, gross margin, and how much of the pipeline is handed to the rep rather than generated by them.

Why it matters: a higher ratio means the company gets more revenue per dollar of compensation, and the rep carries more risk. A 200,000 OTE on a 1,600,000 quota (8x) is a worse offer than the same OTE on a 900,000 quota (4.5x), even though the headline is identical.

The second most useful number is the attainment distribution: what share of reps hit quota last year, and where the median sat. A plan designed well has a median rep somewhere near target and a meaningful group above it. A plan where 30% of reps reach quota and the median is at 60% tells you the quotas are set for the company's plan, not for the reps' reality.

What to ask before accepting an offer

1. What was quota attainment last year, by percentile? If the answer is vague, assume the median is well under 100%.
2. How is quota set, and when does it change? Annual quotas that are reset upward mid-year are a known pattern.
3. What is the ramp and is the draw recoverable? A six-month ramp with a non-recoverable draw is a genuine benefit. A recoverable draw is a loan.
4. Are there accelerators, and where do they start? Accelerators from 100% are standard. Accelerators that only start at 120% rarely get used.
5. What triggers a clawback and for how long? Twelve months on churn is common in subscription businesses. Clawbacks on late payment, which the rep cannot control, are a warning sign.
6. What counts toward quota? Renewals, upsells, services and multi-year deals are treated very differently across plans.
7. When is commission paid? On booking, on invoice or on cash collection changes the timing of your income by months.

What to think about when designing a plan

The rules that prevent most comp disasters are simple.

Pay for the behaviour you want, not the outcome you hope for. If you want multi-year deals, pay more for them. If you want new logos rather than expansion, weight them. Reps will optimise for the plan as written, not as intended.

Keep it to three components or fewer. Every additional measure dilutes attention. If a rep needs a spreadsheet to know what a deal is worth to them, the plan has failed as a motivator.

Set quotas from the bottom up, then compare with the top-down number. Territory capacity, historical productivity and ramp status should produce a quota. If the sum of individual quotas is far above the company plan, the company plan is fine. If it is far below, the gap is a hiring or pipeline problem, not something to fix by raising every quota by 30%.

Model the distribution before you publish. Take last year's actual bookings by rep, run them through the new plan, and look at what each person would have earned. If the top rep earns three times the median, that is probably right. If the median rep would have earned 60% of OTE, you are about to publish a plan that most of the team will read as a pay cut.

Change plans once a year, and explain why. Mid-year changes destroy trust faster than almost anything else a sales leader can do, even when they are financially justified.

The honest picture

Compensation plans are a negotiation between what the company can afford and what it takes to attract people who can sell. The OTE is the part everyone sees, and it is the least informative. The quota behind it, the distribution of who reaches it, and the mechanics of accelerators and clawbacks determine what the job actually pays. Read those first.