Why variable pay

Lowering the base of management reduces the fixed cost of wages. Just as workers sometimes grow complacent, management teams also grow complacent about expanding their own skill sets, seeking out new opportunities or staying abreast of a changing market environment.

By tying pay to individual or collective results, such as mastering relevant skills or developing new markets, you encourage management to stay productive with activities that benefit the business. When a variable pay plan rewards the desired behaviors or results, it reinforces the idea that you value achievement. As with rank and file employees, members of management are not immune to skepticism about what behaviors generate rewards.

This often proves true in organizations that encourage conformity over innovation. By demonstrating your commitment to rewarding the right results, you encourage a culture of achievement, rather than one of conformity or mediocrity. Many of the reported failures of variable pay plans trace back to poor implementation factors, such as hazy objectives or subjective performance measurements.

It is often used to recognize and reward employee contribution toward company productivity, profitability, teamwork , safety, quality, or some other metric deemed important by senior leaders. This performance-based payment is common in the sales field where pay is limited only by the salesperson's ability to close deals.

The employee who is awarded variable compensation has gone above and beyond their job description to contribute to the organization's success. Variable pay is awarded in a variety of formats—including profit sharing , bonuses , holiday bonus, deferred compensation, cash, and goods and services such as a company-paid trip or a Thanksgiving turkey. Variable pay is an expected employee benefit to excite and retain employees. They want the opportunity to earn variable compensation to bolster their base salary.

And, today's employees are also looking for more than just a base salary and benefits package when they decide to come on board and work for an employer. It is no longer enough for a company—even a global company—to offer the same generic benefits to every person they hire. Employees now expect comprehensive benefits packages that are tailored to their own personal circumstances—not just to broadly defined demographic needs.

Personalizing benefits packages starts with employers truly understanding what their employees most want because benefits are only as valuable as each employee views them. The greater the flexibility and variety of the benefits program , the more likely your employees are to feel appreciated.

For instance, a young employee with no children might see no value in a life insurance benefit but would appreciate an extra day or two in paid time off. Supplemental pay includes employer costs for employee overtime and premium pay, shift differentials , and nonproduction bonuses.

Nonproduction bonuses are given at the discretion of the employer and are not tied to a production formula. Common nonproduction bonuses include end-of-year and holiday bonuses, referral bonuses , and cash profit sharing.

Employers must present employees with both the intrinsic and extrinsic value of the benefits they offer in an easy-to-read and understandable format.

Efficiently relaying this information is a time-consuming—but critical—task. From health insurance to retirement plans to variable compensation, one company may offer many types of benefits for employees. Within a profit-sharing plan, for example, a company earmarks a percentage of additional compensation based on its profits.

According to salary. They may be distributed to the entire company or provided to a line of business or region that exceeds revenue goals. The percent value may be different for executive management than other team members. By carefully managing the fixed cost of salaries and using incentive plans, we have been able to better weather economic downturns. You May Like.