Variable Pay

Examples of Variable Pay in the following topics:

• Monetary Employee Compensation

  • Monetary compensation can be either guaranteed (base) pay or variable pay and positively correlates with job satisfaction.
  • Monetary compensation includes both guaranteed (base) and variable pay.
  • Variable pay is a monetary reward that is contingent on discretion, performance, or results achieved.
  • There are different types of variable pay plans, such as bonus schemes, sales incentives (commission), overtime pay, and more.
  • Variable pay is common in industries such as real estate or insurance, where pay is based on commission or the amount of sales generated by the employee.

• Employee Compensation and Benefits

  • The most common form of guaranteed pay is the basic salary.
  • Variable pay—Monetary compensation paid by an employer to an employee on a discretionary basis.
  • Variable pay is contingent on discretion, employee performance, or results achieved.
  • There are different types of variable-pay plans, such as bonus schemes, sales incentives (commission), and overtime pay.
  • For example, a variable-pay plan might be that a salesperson receives 50% of every dollar they bring in up to a certain amount of revenue.

• Employee Pay Decisions

  • Variable systems like pay-for-performance create a policy line that connects job pay and job evaluation points.
  • Range of pay rates refers to the variety in pay rates that workers in one job area might receive.
  • A pay grade system is simply tiered levels of pay based on position, experience, and seniority.
  • Variable pay decision systems like pay-for-performance are designed to motivate employees and ensure intra-organizational cooperation.
  • Merit and incentive pay programs are common forms of pay-for-performance systems.

• Break-Even Analysis

  • If they estimate they cannot sell that many, they can reduce their fixed costs (renegotiating rent, keeping phone bills or other expenses down), reduce variable costs (paying less for materials per item produced, usually by finding a new supplier), or raise the price of their tables.
  • Any of these approaches would lower the break-even point; the company might only need to sell 150 tables per month and pay its fixed costs if it can cover or alter them through other means.

• Equity Theory

  • Much like other prevalent theories of motivation, such as Maslow's hierarchy of needs, equity theory acknowledges that subtle and variable individual factors affect individuals' assessment and perception of their relationship with their relational partners.
  • In any position, employees wants to feel that their contributions and work performance are being rewarded with fair pay.

• Expectancy Theory

  • Vroom introduces three variables within his expectancy theory: valence (V), expectancy (E), and instrumentality (I).
  • This outcome may come in the form of a pay increase, promotion, recognition, or sense of accomplishment.

• Operations-Management Tools

  • The Six Sigma program accomplishes this by identifying and removing the causes of defects (errors) and by minimizing the variability present in manufacturing and business processes.
  • Beginning from the perspective of the consumer of a product or service, "value" is defined as any action or process that a customer would be willing to pay for.

• Financial Rewards for Managers

  • Incentive programs, also known as "pay for performance," provide employees, consumers, or providers with financial rewards as a way of motivating better performance.
  • Pay-for-performance programs are quite common in a number of industries, most notably sales.
  • Other types of pay-for-performance jobs are found in the manufacturing, restaurant, and financial industries.
  • CEO pay growth compared to employee salaries, U.S. gross domestic product, and overall U.S. corporate profits
  • This contrast may be a result of the differing pay structure often associated with upper management.

• Evaluate Alternatives

  • These range from simple tools such as lists of pros and cons to more complex models such as decision trees and influence diagrams, which can capture more variables and include more data.
  • One limitation to using decision trees is that they can become highly complicated as decisions become more complex or outcomes involve greater numbers of variables.
  • It groups sets of variables into things that are known and factors that are uncertain and links them to the choice to be made and the criteria for assessing it.

• The Human Side: Hawthorne

  • The researchers then spent five years measuring how different variables impacted both the group's and the individuals' productivity.
  • Some of the variables included giving two five-minute breaks (after a discussion with the group on the best length of time), and then changing to two 10-minute breaks (not the preference of the group).
  • Changing a variable usually increased productivity, even if the variable was just a change back to the original condition.