Organizational Behavior

What is variable pay program?

Variable pay is employee compensation that changes as compared to the salary which is paid in equal proportions throughout the year. Variable pay is used generally to recognize and reward employee contribution toward company productivity, profitability, teamwork, safety, quality, or some other metric deemed important.

The employee who is awarded variable compensation has gone above and beyond his or her job description to contribute to organization success. Variable pay is awarded in a variety of formats including profit sharing, bonuses, holiday bonus, deferred compensation, cash, and goods and services such as a company-paid trip or a Thanksgiving turkey.

Indeed, businesses that adopt variable may have to recognize the importance of tailoring the program to account for different circumstances. Factors that have to be considered, said Sunoo, include:

  • Achievement of business and personal growth goals
  • Compensation packages that are available to employees if they decided to look elsewhere for work
  • The current level of pay based on salary range relative to skills and experience
  • Eligibility of variable pay as an ingredient in total cash compensation