If you're new to the concept of variable pay, it may seem like a complex maze. But once you get a hang of it, it can be an incredibly powerful tool in attracting and retaining top employees. In this post, we will break down the key aspects of variable pay and answer some of the most common questions.
Variable pay is a compensation strategy where a portion of an employee's salary is based on performance metrics such as individual or team sales targets, production outputs, or project milestones. This can take the form of commissions, bonuses or incentive programs.
Variable pay is tied to individual or company goals that are agreed upon in advance. For example, a salesperson may have a quota for how much they need to sell each quarter. Their commission structure is then tied to these benchmarks of success.
The amount paid as variable pay can vary based on how well employees meet these goals. An employee who exceeds their sales quota may receive a higher commission percentage than one who meets only half their target.
Variable pay can provide several benefits for both employers and employees:
There are several types of variable pay structures that companies use:
A commission structure is a type of variable pay where an employee receives a percentage commission on each sale they generate. The commission percentage may vary based on the specific product or service being sold or the overall sales volume.
For example, a salesperson who sells $100,000 worth of products with a 5% commission would earn $5,000 in commissions for that period.
A sales quota is a benchmark set for an employee's sales performance. This can be set for individuals or teams, and can be based on various factors such as territory, product line, and time period (e.g. monthly, quarterly or annually).
For example, if an employee has a sales quota of $500,000 per quarter and they achieve $550,000 in sales at the end of the quarter, they may receive a higher commission percentage than if they had only achieved $450,000 in sales.
An incentive program is a type of variable pay structure that rewards employees for meeting specific goals or accomplishing certain tasks. This can include team-based goals such as reducing expenses or individual goals such as increasing productivity.
Incentive programs often have predetermined rewards that employees can earn by achieving their goals. These rewards can range from monetary bonuses to non-monetary incentives like paid time off or company-sponsored trips.
Variable pay can be an effective way to incentivize employees to perform at their best while keeping them engaged and motivated. By offering competitive compensation packages that incorporate variable pay structures like commission structures, sales quotas and incentive programs you'll be able to attract top talent and retain your most valuable employees.
