A Study on Variable Compensation and the Other Benefits

Abstract

Variable pay programs are an increasingly popular mode of compensation in today's business world. These programs, which are also sometimes referred to as "pay-for-performance" or "at-risk" pay plans, provide some or all of a workforce's compensation based on employee performance or on the performance of a team. Variable pay proponents contend that providing tangible rewards for superior performance encourages hard work and efficiency and serves as an effective deterrent to mediocre or otherwise uninspired work performance.

Variable pay programs are made up of a variety of different compensation methods. In the broadest sense, variable pay programs include annual incentives or bonus payments; individual incentive plans; lump-sum payments; technical achievement awards; cash profit-sharing plans; small group incentives; gainsharing; and payments for newly acquired skill and knowledge. Some analysts argue that variable pay programs should be defined far more restrictively, but most agree that all of the above share a common emphasis on recognizing achievement, which is the ultimate goal of variable pay plans.