HR Glossary

Variable Pay

What is Variable Pay?

This type of pay can be in the form of a bonus, commission, or profit sharing. It is designed to motivate employees to achieve specific goals or perform above and beyond their normal duties. Variable pay can be a great way to reward employees for their hard work and improve their productivity.

How do you build a Variable Pay scheme?

There is no one-size-fits-all answer to this question, as the best way to build a Variable Pay scheme will vary depending on the specific organisation and the roles and responsibilities of the employees within it. However, some tips on how to build a Variable Pay scheme include:

  1. Establish a clear business case for Variable Pay.
  2. Define the objectives of the Variable Pay scheme and ensure that it is aligned with the organisation’s overall strategy.
  3. Define the categories of employees who will be eligible for Variable Pay and set out the criteria for eligibility.
  4. Establish the range of pay that will be available to employees within each category.
  5. Decide on the method by which employees will be rewarded under the scheme (e.g. pay-for-performance, profit sharing, bonus payments etc.).
  6. Communicate the objectives and benefits of the scheme to employees.
  7. Manage the scheme effectively and review it on a regular basis to ensure that it is meeting the organisation’s objectives.

What are the benefits of Variable Pay?

Variable pay, also known as pay-for-performance, is a system in which employees are paid a percentage of their company’s profits, as opposed to a fixed salary. The benefits of a variable pay system are many. First, it encourages employees to be more productive, as they have a direct financial incentive to work harder. Second, it helps companies control costs, as they can reduce employees’ pay when profits are down. Third, it allows employees to share in the company’s success, as they receive a larger percentage of profits when the company does well. Finally, it is a great way to reward employees for a job well done, as they can earn a larger bonus when profits are high.

What sort of companies need a Variable Pay scheme?

There are a few types of companies that need a variable pay scheme. Typically, companies with a large sales force or commission-based employees need a variable pay scheme to properly compensate their employees. This is because their employees’ income can vary greatly depending on how much they sell. Other companies that may need a variable pay scheme are those with a lot of seasonal employees. For example, a company that hires a lot of temporary workers during the holiday season would need a variable pay scheme to ensure that their employees are properly compensated for the work they do.


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