Variable Pay - Definition & Meaning
What is Variable Pay?
Variable pay is also known as performance pay. As the name suggests, it is for those employees who work beyond their job description and requirements. The employee feel differentiated based on his performance and that eventually betters the performance of the company.
Variable pay is a tool to boost the employer branding for any organisation. It supports the well deserving employees and makes them feel appreciated for their work. In times where niche talent pool is a priced possession, variable pay is a very well accepted practice.
Compensation and Benefits of any organisation are designed keeping its core philosophy and values in mind. Many organisations feel that they must incentivise the employees who are exceeding its expectations in terms of performance and pushing their boundaries. This creates a sense of empowerment for the employees and paints a enviable picture for other co workers. Here is where variable pay comes into picture. Variable is a bonus for exceptionally well performing employees. The only limitation here is, that the company must meet its own profitability and productivity goals in order to give out variable pay to its employees.
It factors both the performance of the organisation and that of the employee. Variable pay is calculated as a percentage of fixed pay.
Variable Pay Statistics used in the Industry
Junior level - 10% or 15% of the fixed salary
Sales Managers - Variable pay is coupled with the sales incentives and can go upto 30% to 40% of the fixed salary. But sales incentives are not a part of the variable pay. They are mere commissions.
Employers Perspective:
Companies prefer to reduce their fixed costs and shift them to variable costs. That means that the variable cost will depend on a certain pre-condition and that is - better performance in this case.
The FMCG, FMCD, Financial Institutions and Medical - Pharmaceutical companies are most known for using Variable pay as a differentiator for employee performance.
Hence, this concludes the definition of Variable Pay along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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