A well-structured, implemented, and communicated variable compensation plan has proven to be an excellent tool for attracting and retaining top talent within companies. This is based on surveys about motivators and employee recognition programs.
According to statistics from TeamStage (a recognized communication platform), 66% of a company’s staff reported feeling dedicated and motivated to stay with the company due to the existence of an incentive program.
What is a variable compensation plan?
A variable compensation plan is a form of compensation commonly known as bonuses or commissions, which can depend on employee performance and is usually measured through productivity goals.
There are different types of compensation plans designed to meet various needs and motivations within the workforce. Here are the most recognized and used by companies to motivate and drive talent:
Bonuses: Bonuses are financial incentives offered by companies to their employees, usually linked to individual, team, or overall organizational performance. Here are some of the most common types:
- Annual bonuses: These incentives are awarded at the end of the fiscal year, based on each employee’s overall performance.
- Goal-based bonuses: These are awarded when specific targets such as sales, customer satisfaction, or designated projects are achieved.
Commissions: On the other hand, commissions are additional payments often given to employees, particularly in sales roles or functions where performance can be directly measured. Some examples of commissions include:
- Sales commissions: This type of commission is paid as a percentage of the sales value made by the company. They are very common in sales roles.
- Tiered commissions: As sales employees reach certain sales milestones, the percentage of the commission increases.
Short- and long-term incentive plans: Short- and long-term incentive plans are tools used within compensation, commonly used to motivate and reward employees based on their performance and contribution to the company.
- Short-term incentives: These incentives are based on annual or semi-annual performance within the company.
- Long-term incentives: Long-term incentives focus on the growth and sustainability of the company, with timelines that can extend for several years.
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How to create a variable compensation plan?
Evaluate the needs
The first step companies should consider is defining the objectives they aim to achieve with the implementation of this compensation plan. It is important to consider the organizational culture, structure, and strategic objectives based on the points mentioned above.
Market analysis
As a second step, it is important to research industry standards for similar positions to ensure a competitive and attractive plan. Staying up to date on these topics is essential to help understand trends and new developments that arise every day.
Plan structuring
On the other hand, it is important to establish clear policies that govern how and when compensations are awarded, including eligibility criteria and performance evaluations. This step is crucial in the creation process to align with a long-term vision.
Define compensation policies
Likewise, it is very important to establish clear policies that govern how and when compensations should be granted, including key criteria such as eligibility and performance evaluation.
Enactment
Another point to consider is implementing a communication plan that encourages frequent use of the compensation system. A lack of communication may lead to the workforce missing out on key opportunities that could improve overall well-being within your company.
Involve Human Resources
Ensuring that the Human Resources department is actively involved in the development and implementation of the compensation system can help provide valuable insights into employee needs.
Moreover, their experience in talent management will help align the compensation system with other employee development and retention initiatives.
Evaluation and continuous adjustment
Finally, implement a feedback and evaluation process for the compensation system. Gather feedback and make adjustments as needed to improve effectiveness and employee satisfaction.
Conclusion
Creating a variable compensation plan is a fundamental strategy to motivate and attract talent in today’s work environment. With a well-structured and communicative approach, companies can not only incentivize the performance of their employees but also foster a values-driven environment where talent feels encouraged.

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