Variable compensation values today's efforts and performance. It is more short-term oriented than fixed pay, which is a long term incentive. Rolf Baarda explains in his book, 'Agile Belonen' (Agile Renumeration): "This may seem like an open door, but practice shows that almost no organization consistently applies this distinction. Anyone who performs well receives an increase in fixed salary, regardless of whether they have grown in their profession or not." Fixed pay is compensation for the quality of an employee. Variable compensation, on the other hand, should be linked to the output of employee’s activities. There are many other forms of variable remuneration than the most common ones we highlight here. If you want to introduce variable compensation to your organization or update an existing one, ask yourself whether this is in line with your culture and values and whether it will move your company forward.
Explained: Variable Pay
Dr. Kilian Wawoe is a Human Resources specialist with 20 years of experience. After leaving ABN-AMRO Bank in 2010 Mister Wawoe started his own consultancy on Performance Improvement. He also works as a part-time professor in Human Resource Management at VU University Amsterdam (The Netherlands).
In this video he explains the types of variable compensation, their advantages and disadvantages and what they could mean for your scaleup.
Bonus and Commission
Bonuses and commissions are both forms of variable compensation. In general, a commission is more common in sales teams. You pay your employees a percentage of the revenue they bring to the company. A bonus is a fixed amount intended as an incentive to achieve an objective – usually equivalent to 1 month's salary. Bonuses can be paid at individual, team and company level, whereas commission is an individual incentive.
Get inspired by how other companies have found creative ways to reward their employees.
Make it personal
Service provider Guidion applies an individual 'On-the-Spotlight' bonus for someone who delivered an outstanding performance beyond their job description. Candidates can be nominated by colleagues. It’s not a bonus paid out in cash, but a personal gift.
Chocolate and impact company Tony's Chocolonely hands out a quarterly scholarship. Employees can nominate themselves for it four times a year, and the winner is chosen by election. Winners receive an amount of up to €250 that they can use to develop their skills in something outside of work.
The gift that keeps on giving
Employees at the software company AFAS receive a €1000 bonus on their little one’s birth to show that the company is there for its employees at special moments in their lives.
Rest & recover
Marketing tech company Buffer offers a paid sabbatical to its employees to combat burnout and set the company up for long-term success. After 5 years, Buffer rewards team members with a fully-paid 6-week break. Employees can spend their sabbatical time however they want.
Personal travel log Polarsteps believes that the only thing that will enrich you is travel experiences. Polarsteps employees get a yearly chance to 'teleport' themselves to a random location visited by one of their users. Polarsteps covers the flight.