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Variable Pay

Meaning & Definition

Variable Pay

Variable pay is the portion of sales compensation determined by employee performance. When employees hit their goals, variable pay is provided as a type of bonus, incentive pay, or commission. Base salary, on the other hand, is fixed and paid out regardless of employees meeting their goals. Together, variable pay and the base salary make up what is known as pay mix.

According to the U.S. Office of Personnel Management, employers typically pay employees variable pay for success related to personal, team, or company performance. Successful organizations establish a clear business plan and key performance indicators that reflect the metrics that matter most to the company. Variable compensation can be communicated in advance as an incentive, or presented as a reinforcement or bonus after the fact. Most employers compensate employees with variable pay in the form of cash, stock, or paid time off from work.

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