Re: What Is Variable In Pay In Compensation Package

Hi friends,
Could i get a detail idea on variable pay in compensation package.
M confused abt it and so is my fellow students..
Thanks

Variable pay is compensation that is contingent on discretion, performance or results. Variable pay links employees' earnings to the performance, good or bad, of an organisation, department or unit / section. In a successful period the potential to earn more could be substantive. However, if performance is poor the workforce has to take some responsibility for this and ultimately be prepared to face a financial penalty.
The potential to be rewarded well can make variable pay attractive to employees. Employers are also attracted to the concept because of its ability to promote a common interest for improved performance between staff and management.
In the private sector variable pay is often linked to profit sharing and share option schemes.
regards
P.V.S. RAVINDRA VARMA

Thanks for the reply but my faculty is denying the fact that varaible pay is based on employees performance.She trys to convey that variable pay are HRA and other allowances which changes as per basic pay and the cost of living of the place where the employee resides.
Now, what is the correct way of setting this doubt of mine right.
Hope you could help me out in this
Rgds,
kruthi

I advise you to search in google and collect relevant data and make a presentation to your faculty.
regards
P.V.S. RAVINDRA VARMA
ps: i'm attaching an article published in Business Finance

I must agree with Mr. Varma on the definition for variable pay. And I must respectfully disagree with your teacher Kruthi. However I would like to add a dimension to variable pay that seems to be overlooked by many organizations.

In a layman's language, if a variable pay scheme exists, then a person will get 'extra' money depending on whether he has achieved, what he is supposed to achieve & whether the company has done well. Some companies will reward the employee even if company is not performing but if the employee is performing. So if for example 85% of an employee's package is fixed and 15% variable & if the employee's monthly salary is 100 Rs (say) then he gets 85 Rs irrespective of whether we worked or not (provided he was present in office) & the 15 Rs he will get if he achieved his targets.

Now the 15% incentive takes care of 2 things: a) That the targets for the company are achieved b) The employee is motivated to do earn more money by doing more work. So if hypothetically, the company has 5000 employees and assuming that all 5000 employees achieve targets (most of them do in real life) then the company pays out 5000 x 15 x 12 = 9 Lakhs per annum as incentive.

Now the dimension I'm adding is the company can actually save a lot of money here. And the answer lies in the second point I mentioned above which is employee motivation. As per research not every person is motivated by money. Each employee is motivated by different things. Some people are motivated by more responsibilities, some people are motivated by spending time in social service, some people by verbal congratulation by the CEO, some people by gits etc. Some famous models such as Holland's RIASEC model provide basis to this thought. So if a company identifies the type of employee and designs a variable pay to suit his/her interest, both the company & the employee wins!

Regards,

Mathew

Mathew,
Thanks for your such nice explanation....
can variable pay take place in FNF statement?
v hav a veriable pay where employees have to evaluate themself for their performance in % on bi-annully basis. No question will ask. one of my collegue left the company, he evaluate himself as 100% performer. He has received his FNF statement where varibal pay is not mentioned. HR Manager replied that "Variable Pay is never mentioned in FnF statement".
is it correct?
He'll get the seprate cheque for the same.
Thanks & Regards,
Deep