variable pays backgrnd

7/29/2019 Variable Pays Backgrnd

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Types of Variable Pays

Submitted By - Priyanka AdhanglTrupen Rathod Snehal Wanere


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Introduction Variable Pays

Variable pay is compensation that does not become a permanentpart of salary and which may vary in amount from period toperiod.

It is a monetary reward paid by an employer to an employee

based on the performance or results achieved. Variable pay is used generally to recognize and reward employeecontribution towards company productivity, profitability, teamwork, safety, quality, or some other metric deemed important.

It is also Known as Performance Pay.

Variable pay is directly tied to some aspect of corporateperformance such as profit, revenue, or labor efficiency. Variable pay links results with rewards.


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Purpose of variable pay

Common purposes of variable pay include:

To reward individual performance, To reward group performance To encourage employees to increase productivity


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Forms of variable pay

Common forms of variable pay include:

Individual special recognition awards Team or group awards Bonuses On-the-spot awards Group incentive plans


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Variable pay public and private sector practice

In the public sector Variable pay gets little

attention Affordability is critical Public perception is

important Long-term incentives are

lacking

Managers typically havelimited flexibility.

In the private sector Variable pay is a hot topic

Competitiveness is critical Public perception is notimportant

Long-term incentives can befound

Managers can often manageto budget.


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TYPICAL VARIABLE PAY-OUTS ACROSSDIFFERENT LEVELS

At junior level, variable pay ranges from 10% to 15% of fixedpay. For sales people, variable pay plus sales incentives can rangefrom 30% to 40%. Sales incentives aren't defined as variablepay as they are commissions.

At middle level, it ranges from 15% to 30% and at senior levels,it is typically between 30% to 50%. At very senior levels, ESOPSand RSUs are also given above target levels as additionalperformance incentives.


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Use of Variable Pay to Organizations

To reduce their investment in fixed costs and increase the useof variable costs, since the latter is paid out only depending onthe achievement of certain results.

Companies also use variable pay to drive performance culture

and even leverage it to attract and retain talent since talentedpeople prefer joining organisations where they will bedifferentiated for their performance.


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SECTORS HIGH ON VARIABLE PAY

Financial services FMCG FMCD Healthcare


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Common types of Variable Pays

Profit Share A bonus plan or profit share program is a compensation system

in which employees are awarded a share of the company'sprofits to encourage increased productivity.

Incentive Plan An incentive plan is a planned activity designed to motivate an

individual to achieve predetermined organizational objectives orKPIs. The payment may be in the form of a bonus, commission or

other non-monetary awards such as merchandise and travel .


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Commission Plan A commission plan is a type of variable payment plan where the

salesperson knows their sales target and how much they will bepaid if they reach their sales target. This payment is generally

based on a percentage of gross revenue or gross profit.Bonuses

A bonus is something paid to you that isn't part of your regularsalary. It is an extra form of compensation


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How it Works

The variable pay would be paid out as a percentage of the wholesubject to the performance of the employee. For instance, ifthe employee gets a grade of 2 on a scale of 1 to 4, the variablepay would be 70-80% of the eligible amount and if the employeegets a grade of 1, the variable pay would be 120-100% of theeligible amount. Accordingly, the performance of the employeedetermines the variable component of the salary. The practice isto increase the component of the variable pay higher accordingto the hierarchy.


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Categories of Variable Pay

Individual performance Division performance Company performance


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Advantages of Variable Pay

It makes the company stronger, more competitive, able tosurvive and prosper in the months and years ahead.

It drives the value of the company by educating people, not withformal training programs but through the work they do everyday on the job.

It gives them the tools they need to make and understanddecisions.

It provides them with business knowledge they can use toenhance their own standard of living and job security as they'remaking a measurable difference to the company as a whole.

better way to attract, retain, and motivate employees,


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IT firms like Infosys, Wipro and TCS cut

variable pay Information technology (IT) companies may be putting up a brave

front but the slowdown has alarmed them enough to make them cutvariable pay of staff.

Tata Consultancy Services (TCS), which recently evicted InfosysTechnologies as the industry bellwether, is said to have made thefirst move in this regard.

HR head and senior vice-president, Infosys Technologies, saidsince variable pay is linked to performance, it would naturallyconstitute a lower percentage of the salary during slowdowns.


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Conclusion

Using variable pay to recognize organization and employeeperformance not only can have a positive effect on youremployees, but it will also be well received by your executivesand shareholders.

The highest performing companies with variable pay plans offergreater incentive opportunity, have greater emphasis oncommunication, developed more accurate goal setting, andmaintain realistic goals and targets.

Employees are motivated to contribute individually, as a unit,division and finally as part of the whole company.


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variable pays backgrnd

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