An AE compensation plan needs to answer three questions: what do you pay, what must the rep sell, and when do they earn the commission? Set those terms before opening the role.
This guide covers the planning decisions and a simple example. It does not set market pay or replace your company's approved compensation agreement.
Start with base and target variable pay
Base is the fixed salary. Target variable pay is the commission or bonus at the agreed target. OTE is the sum of those amounts at target performance.
Keep currency and period consistent. If base is annual, convert variable pay to the same period before adding it. Do not call an uncapped earning opportunity “guaranteed OTE.”
For illustration, an $80,000 annual base plus $80,000 target variable pay produces $160,000 OTE. These are sample numbers, not a salary benchmark.
Decide what counts toward quota
Specify the sales measure. New annual contract value, total contract value, collected revenue, and gross profit are different measures. Use the same basis for quota, credit, and commission calculations.
| Plan decision | Answer required |
|---|---|
| Pay period | Annual base and target variable amount |
| Quota | Amount, period, and sales measure |
| Credit | What counts and which seller receives it |
| Earning event | The event that earns commission under the approved plan |
| Payment timing | The payout schedule |
| Exceptions | Treatment of cancellations, credits, and shared deals |
| Ramp | Reduced targets, guarantees, and their exact terms |
| Changes | Who approves changes and communicates them |
Run several real deal types through the draft. Include a renewal, expansion, shared deal, and canceled order if those occur in your business. Resolve unclear treatment before candidates hear the offer.
Work through the simple math
Assume a flat plan with $80,000 target variable pay and an $800,000 annual quota. The implied rate is 10% on eligible credited sales. This example assumes no thresholds, accelerators, caps, or adjustments.
| Attainment | Credited sales | Variable pay | Total with $80,000 base |
|---|---|---|---|
| 50% | $400,000 | $40,000 | $120,000 |
| 100% | $800,000 | $80,000 | $160,000 |
| 125% | $1,000,000 | $100,000 | $180,000 |
Use the OTE calculator for a simple pay model. If the plan uses tiers, use the tiered commission calculator and the commission tiers guide.
Do not use the flat-rate table to explain a plan with different rules. Show examples based on the approved plan candidates will receive.
Check whether the quota has enough pipeline
A quota is a target, not a source of customers. Use deal size, win rate, sales cycle, territory, and pipeline responsibility to check the workload behind it.
For the sample $800,000 quota, $40,000 average credited deals require 20 wins. At a 25% win rate from qualified opportunities, the model requires 80 opportunities. Those assumptions need support from your own business.
The quota feasibility calculator helps you test the inputs. Include ramp and the time available to close business. Do not compare a partial first year with a fully productive annual target.
Review the cost to the company
The employee's OTE is not the full hiring budget. Add employer costs, benefits, software, recruiting, and manager time. The hiring cost calculator separates those inputs and models payback assumptions.
Review lower, target, and higher sales cases. Check whether incentives reward the deals the company wants to sell. A plan that rewards contract size but ignores unprofitable terms can create work for another team.
Have the people responsible for finance, payroll, and employment terms review the final plan. Give candidates the approved terms before they accept. The worksheet organizes decisions; it does not create a binding pay agreement.
Put the useful details in the job post
Show approved base and OTE ranges separately. Explain the quota measure, pipeline source, ramp support, and whether accelerators or caps apply. If ranges differ by location, label the difference.
Do not replace those details with “unlimited earnings” or “competitive compensation.” A seller needs enough information to compare the role with another offer.
Use the job description template after the plan is approved. For remote hiring, check that pay and eligible locations agree with the remote job description.
Common questions
Is a 50/50 base and variable split required?
No. The sample uses that split to show the math. Choose terms that fit the job and your approved budget.
Is OTE guaranteed?
OTE describes target earnings under the plan. Actual pay depends on the plan and results. A ramp guarantee is a separate term that needs its own explanation.
