What is Variable Pay?
Variable pay is compensation given to an employee based on the results of their performance. It is usually offered in addition to the employee’s fixed salary and comes in various forms.
What are the forms of Variable Pay?
Here are some forms of variable salary;
Commission
It is the portion of revenue given to a sales employee as part of an official compensation plan.
Profit-Sharing Plan
Profit sharing plan gives employees a portion of the company’s quarterly or annual profit in addition to their salary.
Bonus
It is an extra lump sum given to employees based on the company’s performance.
Stock Option
It enables employees the right to purchase shares in the company under certain circumstances. They may be offered as an alternative to cash compensation.
Why do employers offer Variable Pay?
The Variable Pay plan is designed to align the salesperson’s daily activity with company objectives. Employers offer them to encourage sales representatives to produce better business results. It subsequently helps employers attract top talent who desire to see their ability to create value reflected in their pay check.
What are the benefits of Variable Pay?
Here are the benefits of variable salary;
1. Increased productivity
Pay based on employee’s performance given them an incentive to improve their performance.
2. Improved employee engagement and retention
Variable allowance enables talented employees to earn more, which helps improve employee engagement and retention.
3. Correlation of performance with income
Commission, an example of variable allowance, correlates employee performance with income. Employees can quantify the value they add to their employer and vice versa.
4. Financial flexibility
Flexible variable pay enables employers to pay employees after they have generated revenue. It helps align expenditure with income.
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