Variable pay plan is a popular component of CTC in today\’s business world. We also call this “pay for performance\” pay plan. It’s a performance based program, in which employee\’s performance is the deciding factor for his payouts. Here we are highlighting some pros & cons of variable pay
What is variable pay?
Before we start with the benefits and drawbacks we must know what it is?
Variable pay is a part of employee’s annual compensation .It can be based on individual, team or company\’s performance, payable when they meet or exceed their targets.
When both; the company and employee succeed; the employer hands out a performance-based check.
The amount of variable pay is decided according to the company\’s policy, as per structure provided by the company in beginning of the year, it is calculated at the end of the year.
Here are some benefits of variable pay to the individuals:
- Motivate to perform: An extra addition in salary is always motivational. If there is growth to the company then it adds to the growth of teams and individuals hence variable pay always motivate to perform the best.
- Clear Focus on goals: A push is countable if it provides a considerable result to achieve this one must focus the end result. Hence this also develops focus regarding the goal.
- Team work: According to companies polices variables are paid to all individuals working in different teams for the benefit of the company. This increase team work strategy.
- More Money: This variable pay plan adds extra money to employees account.
- Identify non –performers: Who did and who didn\’t can also be clear with this plan. Non- performer and performers can be listed accordingly. This helps the employer to shunt out the non-performers.
Drawbacks of variable pay
- Competition: This variable pay plan raises the competition spirit. This can be considered as a drawback.
- Financial losses: Sometimes market positions effect profitability of the company in some crises companies has to face losses even after the hard work done by the employees in this case companies are not able to pay variables.
- People stop working start buttering: – It’s a common practice followed by many to get a better variable.