What is Variable Pay in Salary?
Variable pay meaning: Variable pay in salary is the addon compensation on top of fixed salary. While pay is the amount employees are entitled to receive even if they don’t achieve their targets, variable pay is given as bonuses or commissions when employees achieve their targets.
In India, variable pay at top companies like Infosys, TCS and Wipro is a mix of employee and company performance in each quarter. So, the higher the sales revenue in these companies, the higher the variable compensation of their employees will be. For instance, Infosys gave variable pay of 70% in the April-June quarter and reduced it to 65% in the next quarter due to reduced operating margin.
Types of variable pay
Variable pay can come in various forms. The four most frequently used variable pay in salary include:
Performance-based or Commission-based
Businesses set individual goals or goals for teams or the whole workforce. And when the goal is achieved, employees receive performance-based variable payout apart from their fixed salary. The payout is in cash and calculated based on units of product sold by each individual.
Incentives and bonuses
Incentives and bonuses are monetary or non-monetary benefits employers offer to motivate their workforce to elevate performance. While bonuses reward employees for their job performance, they incentivise them to maintain work excellence.
Some well-known enterprises and modern-day startups offer stocks to valuable employees for their contribution towards achieving the company’s goals. It is in addition to the fixed salary they receive.
Large, established companies prefer to share some of their profit with their employees as a variable payout. It helps them provide the required motivation to their employees and make continuous profits in the future.
Reasons why employers include variable pay in salary?
Employers include variable pay in crafting their salary structure to ensure smooth business operations:
Encourage high performance
Bonuses and other benefits are crucial in realising the employees’ potential and achieving good business results. Performance-based pay encourages the workforce to push and be better at work and improve consistently.
Reward top performers
Rewarding top performers is the best way to appreciate hard work and good results. It gives spectators a reason to step up their game and be a contender in the upcoming reward programs. It is highly beneficial for both parties. Top companies have capitalised on reward programs to maintain excellent performance and results.
Motivates employees to achieve goals
Sales and revenue are what matters to the employers. And sales representatives are the direct point of contact for the company’s offerings and customers. Hence, their motivation level must be high. Thus, Commission-based variable pay gives them a reason to keep sales high, making money for the company and themselves.
Promotes a sense of responsibility and ownership
Employees feeling a sense of responsibility for their jobs and taking ownership is crucial for companies to grow and achieve milestones consistently. And variable pay, such as cash bonuses and stock options on top of fixed salary, is a major contributor to providing employees with ownership.
Variable pay benefits for employers
Variable pay in salary is a well-thought strategy employers use to benefit from it in many ways. The most prominent benefits include the following:
Attract new talent
Higher variable pay can be lucrative to attract top new candidates to apply for open positions. Many top companies succeed at recruiting talented people year after year owing to hiring variable pay in comparison to their competitors and smaller enterprises.
Retain top employees
Besides attracting new talents, variable pay equally effectively retains the existing workforce. Retaining valuable employees helps companies reduce the cost of training new employees.
Promote a culture of reward and promotion
Rewards and promotion at work are essential tools indicating an employee’s success and career advancement. It promotes a growth mindset and contributes to maintaining good company culture.
Align employee interest with company goals
Meeting company goals are of utmost importance. And a healthy variable pay in salary helps employers align their employees’ interests with their company’s financial goals.
Variable pay is an instrument employers use to capitalize on and benefit from the potential of their employees. It is an essential offering that balances the company’s payroll and motivates the employees to push their limits, aligning with the company’s goals.