{"id":6154,"date":"2023-10-28T11:43:27","date_gmt":"2023-10-28T06:13:27","guid":{"rendered":"https:\/\/razorpay.com\/learn\/?p=6154"},"modified":"2024-02-19T17:47:27","modified_gmt":"2024-02-19T12:17:27","slug":"what-is-variable-pay","status":"publish","type":"post","link":"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/","title":{"rendered":"What is Variable Pay &#8211; All You Need to Know"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69ee43c341874\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69ee43c341874\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#What-is-Variable-Pay\" >What is Variable Pay?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#Example-of-Variable-Pay\" >Example of Variable Pay<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#Variable-Pay-Across-Levels\" >Variable Pay Across Levels<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#Types-of-Variable-Pay\" >Types of Variable Pay<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#1-Incentive-Plan\" >1. Incentive Plan<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#2-Bonus-Program\" >2. Bonus Program<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#3-Recognition-Program\" >3. Recognition Program<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#Advantages-and-Disadvantages-of-Variable-Pay\" >Advantages and Disadvantages of Variable Pay<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#Fixed-Pay-vs-Variable-Pay\" >Fixed Pay vs Variable Pay<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#Automate-Variable-Pay-Calculation\" >Automate Variable Pay Calculation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/razorpay.com\/payroll\/learn\/what-is-variable-pay\/#FAQs\" >FAQs<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What-is-Variable-Pay\"><\/span><b>What is Variable Pay?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Variable pay refers to the payment made by an employer to its employee for their contribution to the organisation&#8217;s growth and success. It is popularly known as performance-linked pay.\u00a0<\/span><span style=\"font-weight: 400;\">\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It is usually paid in the form of incentive pay, bonus, or commission. It is determined based on two main factors \u2013 the employee&#8217;s performance and the company&#8217;s overall performance. Most companies include the process of goal-setting, based on which the variable payments are made.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Example-of-Variable-Pay\"><\/span><b>Example of Variable Pay<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Let us look at an example to understand how variable pay works in the real world.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A company has an incentive scheme, over and above the fixed pay, which states that a sales representative will get a flat 2.5% of any sale they execute. Further, to encourage employees to go for larger deals, the company declared that this figure would become 4.5% and 7.5% for sales exceeding Rs. 15 lakhs and Rs. 25 lakhs, respectively.<\/span><\/p>\n<table style=\"height: 327px;\" width=\"887\">\n<tbody>\n<tr>\n<td style=\"text-align: center;\">Employees<\/td>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Sales achieved<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Variable pay<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Emp 1<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Rs. 10 lakhs<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Rs. 25,000<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Emp 2<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Rs. 20 lakhs<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Rs. 60,000 (2.5% of Rs. 15 lakhs + 4.5% of Rs. 5 lakhs)<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Emp 3 \u00a0<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Rs. 30 lakhs<\/span><\/td>\n<td style=\"text-align: center;\"><span style=\"font-weight: 400;\">Rs. 1,20,000 (2.5% of Rs. 15 lakhs + 4.5% of Rs. 10 lakhs + 7.5% of Rs. 5 lakhs)<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Hence,\u00a0 a representative achieving Rs. 10 lakhs of sales will get a variable pay of Rs. 25,000. On the other hand, a representative with Rs. 20 lakhs sales will get Rs. 60,000 and someone with Rs. 30 lakhs sales will get Rs. 1,20,000 as variable pay.<\/span><\/p>\n<div style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/payroll.razorpay.com\/signup?r=blog_cta_variable_pay\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Automate salary calculation<\/a><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Variable-Pay-Across-Levels\"><\/span><b>Variable Pay Across Levels<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Typically, variable pay is expressed as a percentage of fixed salary. At the junior level, the component of variable pay usually falls in the range of 10% to 15% of the fixed pay. As the employees get promoted, their variable pay component increases. So, the figure increases and falls from 15% to 30% at the middle level, which goes up between 30% to 50% at the senior level.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Types-of-Variable-Pay\"><\/span><b>Types of Variable Pay<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The three most common forms are:<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"1-Incentive-Plan\"><\/span><b>1. Incentive Plan<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">In this type of arrangement, specific performance targets are set for a particular period, and the payouts are done if the specified criteria are met. Examples of incentive plans include profit sharing, gain sharing, stock options, sales incentives, etc.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"2-Bonus-Program\"><\/span><b>2. Bonus Program<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">In this case, the payouts are contingent on completing specific tasks and fulfilling related conditions. Examples of bonus programs include retention, referral, project bonuses, etc.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"3-Recognition-Program\"><\/span><b>3. Recognition Program<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Here, broad guidelines are established before implementing the program, and the awards vary based on these guidelines. Examples of recognition programs include spot awards, nomination programs, managerial recognition, etc.<\/span><\/p>\n<p>A usual question that arises at this point is how fixed pay and variable pay are different from each other. Let&#8217;s look at the table below to understand.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Advantages-and-Disadvantages-of-Variable-Pay\"><\/span>Advantages and Disadvantages of Variable Pay<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<table data-sourcepos=\"1:1-9:127\">\n<tbody>\n<tr data-sourcepos=\"1:1-1:38\">\n<th data-sourcepos=\"1:1-1:16\"><strong>Advantages<\/strong><\/th>\n<th data-sourcepos=\"1:18-1:36\"><strong>Disadvantages<\/strong><\/th>\n<\/tr>\n<tr data-sourcepos=\"3:1-3:173\">\n<td data-sourcepos=\"3:1-3:63\">Motivates employees to perform better and achieve their goals<\/td>\n<td data-sourcepos=\"3:65-3:171\">Can be unpredictable, as it depends on the employee&#8217;s performance and the company&#8217;s financial performance<\/td>\n<\/tr>\n<tr data-sourcepos=\"4:1-4:183\">\n<td data-sourcepos=\"4:1-4:63\">Aligns employee goals with the company&#8217;s goals and objectives<\/td>\n<td data-sourcepos=\"4:65-4:181\">Can cause stress for employees, as they may feel pressure to perform at a high level in order to earn a good income<\/td>\n<\/tr>\n<tr data-sourcepos=\"5:1-5:154\">\n<td data-sourcepos=\"5:1-5:46\">Can help companies save money on labor costs<\/td>\n<td data-sourcepos=\"5:48-5:152\">Can lead to inequality among employees, as it rewards those who perform well more than those who do not<\/td>\n<\/tr>\n<tr data-sourcepos=\"6:1-6:140\">\n<td data-sourcepos=\"6:1-6:93\">Can be seen as a fair way to pay employees, as it rewards them for their actual performance<\/td>\n<td data-sourcepos=\"6:95-6:138\">Can be complex and difficult to administer<\/td>\n<\/tr>\n<tr data-sourcepos=\"7:1-7:92\">\n<td data-sourcepos=\"7:1-7:43\">Can help to attract and retain top talent<\/td>\n<td data-sourcepos=\"7:45-7:90\">Can lead to short-termism in decision-making<\/td>\n<\/tr>\n<tr data-sourcepos=\"8:1-8:114\">\n<td data-sourcepos=\"8:1-8:59\">Can be used to reward employees for specific achievements<\/td>\n<td data-sourcepos=\"8:61-8:112\">Can be difficult to measure and manage performance<\/td>\n<\/tr>\n<tr data-sourcepos=\"9:1-9:127\">\n<td data-sourcepos=\"9:1-9:41\">Can be used to reduce fixed labor costs<\/td>\n<td data-sourcepos=\"9:43-9:125\">Can be seen as unfair to employees who do not have control over their performance<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><span class=\"ez-toc-section\" id=\"Fixed-Pay-vs-Variable-Pay\"><\/span>Fixed Pay vs Variable Pay<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<table>\n<tbody>\n<tr>\n<td><b>Basis<\/b><\/td>\n<td><b>Fixed pay<\/b><\/td>\n<td><b>Variable pay<\/b><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Definition<\/span><\/td>\n<td><span style=\"font-weight: 400;\">It is paid out to the employees regardless of them achieving their goals.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">It is paid only when the employees achieve their goals.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Frequency<\/span><\/td>\n<td><span style=\"font-weight: 400;\">It is paid to the employees every month.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">It may not be paid every month, but rather quarterly, half-yearly, or annually.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Factors<\/span><\/td>\n<td><span style=\"font-weight: 400;\">It is independent of any factors.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">It is dependent on the individual as well as the company&#8217;s performance.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Components<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Basic pay, dearness allowance, house rent allowance, other special allowances, etc.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Sales incentive, profit sharing, retention bonus, project bonus, spot award, etc.<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><span class=\"ez-toc-section\" id=\"Automate-Variable-Pay-Calculation\"><\/span>Automate Variable Pay Calculation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><a href=\"https:\/\/razorpay.com\/payroll\/?r=blog_cta_variable_pay\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\"><span style=\"font-weight: 400;\">RazorpayX Payroll<\/span><\/a><span style=\"font-weight: 400;\">\u00a0is a one-stop solution for salary calculation, payroll processing, employee onboarding, automated statutory compliance, and other HR activities. It bifurcates the salary structure automatically into various components and calculates the overall salary as part of its payroll processing, making life easier for you.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, it also files various taxes such as PF, PT, TDS, and ESIC along with their automatic calculation so that you and your team can focus on more important tasks.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Sign-up for RazorpayX Payroll today and leave all the tedious CTC calculations to us; we also deposit them in employees&#8217; bank accounts for you.<\/span><\/p>\n<div style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/payroll.razorpay.com\/signup?r=blog_cta_variable_pay\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Automate salary calculation &amp; disbursals<\/a><\/div>\n<p><strong>Read more:<\/strong><\/p>\n<p><a href=\"https:\/\/razorpay.com\/payroll\/\"><span style=\"font-weight: 400;\">Payroll Software<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/payroll\/what-is-payroll\/\"><span style=\"font-weight: 400;\">What is Payroll<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/payroll\/learn\/payroll-process\/\"><span style=\"font-weight: 400;\">Payroll Process<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/payroll\/learn\/payroll-management-system-software\/\"><span style=\"font-weight: 400;\">Payroll Management<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/payroll\/learn\/hris-human-resource-information-system\/\"><span style=\"font-weight: 400;\">HRIS<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/payroll\/leave-attendance-management\/\"><span style=\"font-weight: 400;\">Leave Attendance Management<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/payroll\/attendance-management-system\/\"><span style=\"font-weight: 400;\">Attendance Management System<\/span><\/a><\/p>\n<p><a href=\"https:\/\/razorpay.com\/payroll\/hr-software\/\"><span style=\"font-weight: 400;\">HR Software<\/span><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"FAQs\"><\/span><b>FAQs<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\t\t\t<div id=\"rank-math-rich-snippet-wrapper\" class=\"\">\n\n\t\t\t\t\n\t\t\t<\/div>\n\t\t\n","protected":false},"excerpt":{"rendered":"<p>Variable pay is usually paid in the form of incentive pay, bonus, or commission. It is determined based on two main factors \u2013 the employee&#8217;s performance and the company&#8217;s overall performance.<\/p>\n","protected":false},"author":151156494,"featured_media":6157,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3404],"tags":[],"class_list":{"0":"post-6154","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-payroll"},"_links":{"self":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/6154","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/users\/151156494"}],"replies":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/comments?post=6154"}],"version-history":[{"count":6,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/6154\/revisions"}],"predecessor-version":[{"id":10123,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/6154\/revisions\/10123"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media\/6157"}],"wp:attachment":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media?parent=6154"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/categories?post=6154"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/tags?post=6154"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}