As the economy rebounds, most employers are reviewing their compensation strategy and determining what changes need to be made to retain employees. Variable pay is one component of a post-recession compensation structure that many employers are considering.
Why explore variable pay?
When executed properly, variable pay can:
- Reinforce cultural change
- Align pay with results (to help achieve the goals of the organization)
- Help to suppresses the entitlement mentality (where employees assume they will get a raise every year, regardless of achievements)
- Be an opportunity to communicate the organization’s values to employees (through rewarding for the achievement of the goals the organization values
Questions to ask before implementing a variable pay program
- Why are you moving to a variable pay plan? Are the employees asking for variable pay? What are the common practices in your particular industry around variable pay? What does senior leadership hope to achieve with variable pay?
- What are the core objectives of your plan? Are you trying to reward past performance, incentivize future performance, or fill a gap in total compensation levels without adding to fixed costs?
- Is your organization truly ready for variable pay? The organization’s base pay program should be solid before implementing a variable pay program. It should be working seamlessly. Ideally employees would know what level they’re in and how to move to the next level.