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6 Best Practices For Human Resources To Offer Variable Pay

By July 9, 2012February 19th, 2015No Comments

young business woman walking on a tightropeThe days of merit increases and set salaries may be limited.  How does a human resouce department structure salary and incentives to create a relevent employee compensation plan and assure a motivated workforce?

There are 6 best practice concepts when creating a variable pay program, these include:

  1. Create a direct connection between performance and reward.  There should be a very strong correlation between incentives and the behavior that drives the reward.  Planning the variable pay scale and program should include a detail analysis of the position’s responsibiities as well as what would constitute effectively doing the job.
  2. Consider both qualitative and quantitative incentives.  Sometimes a reward can be a new job title or organizational recognition, such as winning a contest.  Both qualitative incentives and quantitative rewards should be part of a variable pay program.
  3. Offer and reward group and individual initiatives. There are times your employees should work as a team, and times when they must act individually. The variable incentives should encompass both eventualities and reward positive performance in both group and individual goals.
  4. Align rewards to corporate culture.  If the activity is outside of the scope of corporate culture,  you are less likely to have success. Instead, be sure that the objectives of the variable pay program are consistent with the organizational culture.
  5. Be sure the program is transparant.  Communication is always key to a well initiated campaign.  Especially if the variable pay structure is different than what had been presented previously, its important to be sure that the new campaign is announced and understood. Progress toward goals should be monitored and for greatest impact, the progress should be transparent and identifiable.
  6. Make the reward substantial and commensurate with the effort.  If you are asking for modified behaviors or improved performance, it’s more likely to get attention if the rewards are important.  Rule of thumb is to make variable pay incentives at least 5% of base pay to get attention.
With any initiative, it’s incumbant upon the HR department to communicate the plan and get buy-in from management and staff.  Any change to pay structure should not be a surprise.  Clear communication, written plans and structured goals represent best practices for offering a variable pay program.
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