Short-Term Incentives and Bonuses Abound!

3 Steps to Establish Variable Pay Programs


Variable pay – payment of short-term incentives and bonuses- is becoming an increasingly popular mode of compensation in today’s business world. A New York Times report states these incentives have skyrocketed from 4% of payrolls in 1988 to 13% in 2016. The rise of variable compensation throughout organizations reflects the priority of aligning compensation with performance while keeping fixed costs under control. How do you instate a successful variable pay policy at your company?


Take these 3 steps to establish a successful variable pay system:


1: Be Clear

 The goals given to your employees must be clearly defined and precisely described for optimal understanding. Each step of the way should be transparent, including measuring performance regularly and reliably. Create a clear system of performance feedback with regularly scheduled meetings to avoid any murky details in the process!


2: Give Employees Control

 Variable pay should only be offered to employees who have control over their performance. If your employee is dependent on the output and actions of their teammates, they may have little control over the group performance as a whole. For example, an employee who can report on their direct sales each quarter is a good candidate for variable pay. Compensation programs that are rooted in employee autonomy and empowerment are fated for productivity.


3: Use It as a Tool

 Use your variable pay program as a tool to research different business goals. Set ambitious, yet attainable goals across different departments to see how much productivity is possible. When executed correctly, optimal revenue should be achieved.


A well-designed variable pay program that truly rewards individual performance will make your company stronger, more competitive, flexible to change, and adaptable during growth. The value of your business will thrive by providing the tools and support your team needs to make wise decisions in the workplace!