What is Variable Pay?
Variable pay is the portion of sales compensation determined by employee performance.
Variable pay refers to a compensation structure where a portion of an employee's total earnings is directly tied to their individual performance, team performance, or the overall performance of the organization. It is a form of pay that is not fixed or guaranteed, but rather fluctuates based on specific criteria or metrics.
Variable pay is commonly used to incentivize and reward employees for achieving specific goals, targets, or performance benchmarks. These goals can be related to individual performance objectives, team-based accomplishments, or the organization's financial performance. The criteria for determining variable pay are typically outlined in advance and may vary across industries and companies.
Variable pay can take different forms, such as:
1. Performance bonuses: Lump sum payments awarded to individuals based on their achievement of predefined performance goals or targets.
2. Sales commissions: Compensation given to sales professionals based on the value or volume of sales they generate.
3. Profit sharing: Distribution of a portion of the company's profits among employees as an incentive for their contribution to the organization's success.
4. Stock options or equity-based incentives: Granting employees the right to purchase company stock at a predetermined price as a reward for their performance or tenure.
5. Incentive programs: Rewards or bonuses provided to individuals or teams for meeting or exceeding specific performance metrics, such as customer satisfaction, productivity, or quality targets.
The purpose of variable pay is to motivate employees to perform at higher levels, align their efforts with organizational goals, and create a sense of shared success. It can also be used to attract and retain talented individuals by offering the potential for higher earnings based on performance.
It's important to note that variable pay is different from fixed or base salary, which is the guaranteed portion of an employee's compensation. Variable pay is contingent upon achieving predetermined criteria and may vary from year to year, depending on performance or business outcomes.