Creating a Variable Pay Plan

Which organizations should use variable pay?

Just because incentive pay plans are successful in some organizations does not mean they will work in your organization. Before implementing an incentive pay plan, you should consider your business lifecycle:

• Startup business
• Growth business
• Mature business
• Declining business

A start-up business will typically want to minimize fixed costs, and higher levels of variable pay complement this type of business.

A growth business typically can afford higher fixed costs and competitive variable pay plans to ensure their ability to attract and retain a high-caliber workforce.

A mature business with a stable product line will typically want to ensure retention by providing competitive base salaries with more moderate variable pay plans.

A declining business model with an unstable product line will typically be reducing fixed costs through workforce attrition and reductions, and will provide conservative to competitive base salaries and more conservative to moderate variable pay plans with increased focus on cost management within a business.