What is variable pay? (with photos)

Management positions commonly have fixed salaries for the jobs offered by the company.

Compensation represents payment or compensation given to an individual for general employment or services rendered. Variable compensation is a form of payment that changes with a given activity. All companies use some form of variable pay to reward employees for a job or activity completed. In some cases, companies may provide variable compensation in addition to fixed salaries, including bonuses. This type of compensation can be broadly defined when considered as part of the company’s total compensation package for different types of employees.

A sales team may receive a base salary and commission.

Hourly pay is the most common type of variable pay given to employees. For every hour worked, a company gives the employee a standard salary. The hourly rate paid to each employee varies based on the employee’s knowledge, skills and abilities. The market rate for certain types of jobs can also affect hourly pay. Overtime can also be part of variable pay, as employees who work more than a certain amount of hours per week will receive higher hourly pay.

Variable compensation is a form of payment that changes with a given activity.

Management positions commonly have fixed salaries for the jobs offered by the company. As an additional incentive, salaried positions – both management and third-party – may receive a portion of the variable remuneration. For example, a sales position might offer a small salary to each worker in that department. The compensation package will include an additional payment for each item sold by the individual. The variable pay package allows a worker to increase their pay depending on the work and effort expended on the job.

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Overtime may be part of variable compensation.

One-time bonuses or rewards may also form part of a variable compensation package. The bonus or compensation reward may depend on performance over a certain period of time. Individuals may receive a range of extra compensation depending on their actions and ability to meet goals. Failure to meet the target simply means lower compensation, hence the variable nature of this compensation plan. In many cases, the bonus or reward is paid quarterly or annually to the employee.

The offer of variable remuneration has a double objective. First, companies can reduce their upfront costs of hiring employees. Lower fixed salaries result in lower overall costs each month for the business. Second, employees often work harder to meet salary targets, which benefits both the company and the employee. The most essential part of this compensation package is creating competitive salaries; failing to do so can create a scenario where individuals are unwilling to work hard for low salary increases.

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