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INTRODUCTION
Variable pay can give an organization the ability to attract, motivate, engage, and retain key employees while maintaining a competitive position in relation to the defined labor market.
Variable Pay
A monetary reward that is discretionary or contingent based on performance or results attained
rather than fixed compensation expenses (e.g., base pay). Variable pay is considered to be "at risk"
pay and can be designed for an individual, team, department, unit, or an entire organization.
Today's compensation programs reflect a move toward controlling fixed base salary expenses while increasing variable compensation opportunities. There is greater emphasis on variable, performance-based compensation.
While market competitiveness is important, there are other reasons for the increase in variable pay. For-profit and nonprofit organizations have grown leaner by:
- increasing technology and automating work processes
- reducing management levels throughout an organization
- eliminating redundant jobs
- relocating departments to lower cost of labor locations
- broadening responsibilities and creating teams to ensure jobs are more flexible
- greater use of a contingent labor force
In today’s environment, organizations look for ways to increase revenue while controlling operating expenses and ensuring customer satisfaction. Variable pay can complement these goals and motivate employees to achieve important organizational objectives.
Variable pay can also control cost of labor expenses during a financial crisis when organizations need to take aggressive steps to reduce expenses.
| In good times… | In bad times… |
|---|---|
| When the organization or the employee succeeds, variable pay is paid to eligible employees. | When the organization or the employee does not succeed, variable pay is not paid to eligible employees. |
Variable pay plans typically reward employees for meeting or exceeding organizational objectives and individual or team results.
Q: Has variable pay been successful?
A: A pay for performance culture within an organization can be highly successful. In fact, the great majority of business organizations have some form of variable pay and value linking the plan with organizational goals and individual performance.
Course Overview
This course is designed for compensation professionals supporting nonprofit organizations. The course will teach you how to select and implement variable pay plans for a tax-exempt, nonprofit organization.
We begin by summarizing the regulatory environment affecting the variable pay of tax-exempt organizations. Next, we describe the principles underlying variable pay and show how these principles apply to various employee groups.
Then, we outline various types of variable pay plans along with the components of an effective plan. This section will be helpful in setting up an appropriate variable pay plan in your organization but will also prepare you for the potential pitfalls that organizations face. This section may aid compensation professionals looking to improve existing variable pay plans.
In the next section, we discuss the importance of updating the variable pay plan. As a plan ages, the effectiveness of the plan may be reduced without a regular review and update. We describe the most common issues that can develop and ways to avoid these issues. We will conclude with a case study to demonstrate how a salary survey tool can be used to research variable executive cash compensation within a competitive labor market.