Variable Compensation for Employees: What Does the Data Say?
If you’ve ever managed a team — or spent time working as an exempt employee — you know that a salary offer doesn’t always provide a complete picture of an employee’s total annual compensation. In addition to base annual salary for exempt employees and hourly rates for non-exempt workers, by the end of a given year a typical employee may receive compensation in the form of insurance benefits, a hiring bonus, a performance-based bonus, or team incentives that have yet to be determined as the year begins. Variable compensation means two employees who make the same amount on paper can take home wildly different amounts of money by the end of the year.
Is this a good thing for the company? Anecdotal responses are mixed; some say variable pay generates motivation and increases productivity, while others believe the practice inhibits transparency, perpetuates bias, and undermines company culture. If incentives are offered for subjective or undocumented reasons, if they’re offered unfairly, or if they’re offered and then withdrawn, the concept of variable pay can easily become a source of resentment and a driver of turnover.
In an effort to see past opinions and gather clear data on the subject, Payscale conducted research and published its 2017 Compensation and Best Practices Report, and the results were revealing in some areas. Here are a few key takeaways from the report.
Variable pay is a prominent aspect of modern compensation. 74 percent of the companies that participated in the survey report offer some form of variable pay.
Variable pay practices are more likely to take place in larger companies and less likely among small companies and start-ups.
Variable pay trends show increasing frequency during the year. Instead of one end-of-year bonus, companies are more likely than they were a year ago to offer quarterly or monthly bonuses.
Among surveyed companies, 64 percent offer individual bonuses, the most common form of variable pay. 25 percent offer team incentives, and 46 percent offer spot or discretionary bonuses.
A growing number of companies are providing bonuses and performance-based incentives to non-exempt workers. Top-performing companies are more likely to do this.
Individuals and non-exempt workers often don’t recognize their impact on team goals. Variable pay based on team performance can help these individuals align their goals with those of the company.
Contact the team at the ACCENT Hiring Group to learn more about the study and find out if variable pay is the right move for your growing company.