19 Sep Is Variable Compensation the Right Choice for Your Company?
Variable compensation is a way of paying employees based on their individual performance or that of their team. BusinessDictionary notes that variable pay is also sometimes called “pay at risk,” and it can also be referred to as “pay for performance.” Here, we explore more about this popular approach to compensation.
What Does Variable Pay Entail?
Variable pay doesn’t have to consist of salary alone. In fact, Inc. states that it can be incorporated into many different aspects of compensation, including commission pay, annual incentives, bonus plans, lump-sum payments, gainsharing, and so forth. One important factor to note is that, while the options for introducing variable pay into your workplace are virtually endless, doing so can also incorporate added complexity into your compensation planning schedule. Thus, it can be helpful to use compensation planning tools to support such initiatives.
Should Our Company Use Variable Pay?
If you’re considering variable pay as a way to compensate your employees, you’re certainly not alone. Huffington Post notes that 90% of companies are now using variable pay in at least some form, compared to 50% who used them during the early 1990s.
For most organizations, tying pay to performance makes sense financially and in terms of driving productivity. While pay alone may not be enough of a motivator to drive long-term engagement and employee satisfaction, top performers who consistently exceed expectations want to feel like they’re being rewarded fairly for their contributions. To that end, variable pay can help to support your company’s talent strategy.
Nonetheless, variable pay may work best when it’s just one component of a larger overall total rewards program. Factoring it into a program that also includes the benefits employees need to maintain job satisfaction, such as career development opportunities, could have the greatest impact in terms of supporting retention and engagement strategies.
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