In a tight talent market where employees have choices about where they commit their time and talent, variable pay is frequently used as a retention, recruitment, and motivation tool. PayScale’s 2018 Compensation Best Practices Report (CBPR) reveals that nearly three-quarters of organizations give some type of variable pay. At a time when increase budgets are tight, organizations are starting to shift their rewards towards variable pay over fixed costs (base salary). Doing so allows them to really shell out the cash for their highest performers, but only if they use the right kinds of variable pay.
Variable Pay Types and Options
Before you decide whether variable pay is right for your organization, it’s helpful to get a deeper understanding of the variable pay options and the cultural impact of pay choices. The way you design your incentive pay program can make a big difference on multiple pieces of your business, so it shouldn’t be an afterthought. Organizations are using variable pay programs to help them compete for talent, to combat turnover, and motivate all employees to higher levels of performance. But when you get it wrong, you might be wasting your compensation dollars and driving your employees towards undesirable behavior that hurts the long-term success of your organization. In this whitepaper, you’ll get a deep dive on the following:
- Individual incentive bonuses
- Employee referral bonus
- Spot bonus or other discretionary bonus programs
- Hiring bonus
- Company-wide bonus
- Team incentive bonus
- Retention bonus
- Profit sharing
- Market premium bonuses
Who Gets It and Why?
There is also a fair amount of variability across and within organizations when it comes to who gets variable pay and why. Some jobs more typically receive more of this type of pay, while some typically receive less. For example, sales roles and leadership roles usually have explicit payouts tied to specific deliverables. There are both organization-driven and employee-based reasons for this. The types of people drawn to high amounts of this type of pay tend to be your risk-takers; risk-takers are often drawn to both sales and leadership roles- roles that chart new territory. Whether or not sales and leaders perform, or even overperform, can make a significant impact to the organization’s bottom line, so often directly linking performance with variable pay can both attract top sales professionals and leaders and positively impact organizations as well.
How To Create a Variable Pay Plan
Often, when building out a new plan, it’s tempting to follow the best practices, the next practices, the “bleeding-edge” practices that other organizations are doing. So how do you know how to build the right variable pay plan? Consider the needs of your organization, your organizational culture, your business goals and objectives, and the makeup of your workforce. As we go through each of these five tips, think about how your organization’s unique circumstances can point to the right way of designing the plan you need. In this whitepaper, we’ll do a deep dive on all five of these tips for creating a pay plan.
- How to align pay to organizational results
- Set meaningful goals
- Consider your workforce
- Think about the differences across your workforce
- Consider the speed of business and organization lifestage