Bonus, commission and OTE: how to value variable pay in a job offer

Base, OTE and realistic OTE

A role with variable pay usually quotes three things, sometimes without saying so:

• Base salary: the guaranteed part, paid whatever happens.
• On-target earnings (OTE): base plus the bonus or commission you would earn by hitting 100% of target.
• Realistic OTE: base plus the variable pay you are likely to earn, based on how the team actually performs.

Ads and recruiters often lead with OTE because it is the biggest number. Your rent is paid from the base, so start there. Ask whether commission is capped, when it is paid, whether there is a threshold before it starts, and what happens in your first months, when you are still building a pipeline.

Asking what percentage of the team hits target

The single most useful question is: "Last year, how many of the team reached target, and what did a typical person earn in total?" A good employer will answer it. If most of the team hits target, the OTE is realistic. If only the top one or two do, the realistic figure is much lower.

Ask too whether targets were changed during the year, whether the territory or client list is established or new, and whether anyone left because the targets were not achievable. For a discretionary bonus, ask what it paid in each of the last two or three years, and whether it depends on company results you cannot influence. Our guide to salary negotiation covers how to ask without sounding sceptical.

How bonuses are taxed in NZ

For an employee, bonuses and commission are salary or wages under the Income Tax Act, taxed through PAYE. A bonus paid as a lump sum is taxed at extra pay rates: Inland Revenue's method is for the employer to add the bonus to your last four weeks' pay multiplied by 13, and use that total to set the rate. That can make a bonus look heavily taxed. Over the year, though, your income tax is worked out on your total income, so if too much or too little was deducted, it is squared up after the end of the tax year.

KiwiSaver is deducted from bonuses and commission, which also means your employer's KiwiSaver contribution applies to them, and student loan repayments apply as usual.

Discounting variable pay when comparing offers

When you compare a variable-pay offer with a fixed salary, use a realistic figure, not the full OTE. Take a base of $70,000 with $20,000 of commission at target. At 2026/27 rates, on tax code M, with ACC at 1.75%, KiwiSaver at 3.5% and no student loan:

So the commission is worth between nothing and about $12,600 a year after tax, and a realistic value might be around $8,900. Compared with a fixed salary of $82,000, the variable offer comes out ahead only if you expect to earn more than 60% of the commission target, which is $12,000 of the $20,000. The Offer Comparer takes a bonus figure alongside the base and works out two offers after tax, with no account needed; enter the realistic amount rather than the full target. Our article on comparing two job offers covers the rest of the package.

Recording advertised, asked, offered and accepted

Variable pay changes as an offer is negotiated: a higher base with a lower target, or a guaranteed first-quarter commission while you ramp up. Keep a record of each version: what the ad said, what you asked for, each offer and what you accepted, including the variable terms.

In jobtracker.co.nz, each job keeps that salary story, and its package can hold a bonus with the share of target you expect to be paid, or commission at the amount you expect to earn, so the value you compare is the realistic one rather than the headline. If the commission plan or the targets change after you start, note that too, with the date, so your next pay conversation starts from what was actually agreed.

Value the variable part honestly