If you’re looking to motivate and reward your employees and increase revenue, then have a plan for it. For example, base salary and commission. Also, any other incentives or benefits that may be available to your sales reps are included in your compensation plan. Compensation for employees given by the Best FMCG Placement Agency is based on job criteria other than hours worked, like sales commissions, is called variable pay. If you want to make sure that you’re incentivizing the desired behavior with this new payment, it takes time and effort to administer it.
Employee performance is taken into account when determining this pay in sales. Workers receive this so called pay as a form of incentive pay or commission if they achieve their goals (aka quota). On the other hand, base salary is set and paid regardless of whether employees achieve their goals. The pay mix is based on what is known about variable pay and base salaries together.
What is a Variable Pay System and How Does it Work?
When it comes to variable pay, it refers to the portion of a company’s sales based on employee performance. Workers who achieve their goals receive this pay as a reward, commission, or incentive pay.
There are two main components of this new pay : your performance and the companies. In other words, most companies’ schemes have a target-setting and actual payout based on this combination. Every organization has a variable pay component, which is usually a percentage of fixed pay.
Aside from that, variable pay policy programs are becoming more and more popular in today’s business environment. Incentives such as bonus payments, technical achievement awards, lump-sum payments, profit-sharing plans, and payments for newly acquired skills and knowledge are all part of these programs.
Employers who want to reward their employees fairly based on certain data points, such as units sold or sales revenue or customer service scores, or a variety of clients, can use variable pay.
Based on individual or business criteria, such as targets met or profits made, it is awarded. To be paid on top of a base salary, it is designed for employees. A company’s overall compensation plan will often include variable pay as part of it. Hourly employees who are paid based on the number of hours they work or piece-rate employees receive variable pay.
Know the Concept of Variable Pay and Fixed Pay
Fixed Pay
Fixed pay refers to a monthly salary that is fixed. It’s the buildup salary that is listed on the salary slip of the best staffing agencies, along with several basic allowances. In addition, fixed pay has several advantages.
- Employee safety is a top priority.
- During the year, you receive a fixed number of vacation days.
- Less rigidity in the workday.
- On rainy days, when the company unexpectedly closes, you’re more likely to get paid more.
Variable Pay
Employees receive this new pay based on whether or not they achieve their goals. Company-to-company, the ratio of this pay varies, and norms are established based on the role of employees. Employers who use this pay concept can set scales and levels for their salaries.
Variable pay has several advantages, including:
- Productivity
- Retention
- Competition
If you are hired on a fixed-pay basis, you’ll receive the same salary as stated in the offer letter.
Calculate your package using the formula: Fixed Pay (X%) + Variable Pay (Y%) (100-X percent of total package).
As a result, your salary package includes variable pay. Each month, you’ll receive your fixed pay, but you’ll receive your variable pay every quarter, half-year, or year (may differ from company to company). Let’s take a look at an example to better understand this. Let’s say that a company pays variable pay every three months to its employees.
Take the example of a 30,000 rupee monthly salary. Of that, 25,000 rupees are fixed and 5,000 rupees are variable. In other words, at the end of every month, you’ll be paid Rs.25,000.
Suppose your company announces that the variable pay percentage will be 80 percent, which means you will receive 80 percent of your variable pay, or Rs. 4,000.
You will receive Rs. 4,000 X 3 = Rs. 12,000 at the end of the quarter.
How to Put Your Compensation Pay Plan Into Practice
To motivate your sales reps to close deals, you should provide them with a sales compensation variable pay plan. Creating a direct link between results and pay by rewarding or compensating rep performance is one of the best ways companies can motivate sales teams to hit goals.
It is more important that your variable pay structure encourages the right sales behaviors to achieve your company’s goals. When properly implemented and paired with the right pay mix, variable compensation pay can be a powerful motivational tool.
Providing your sales team with opportunities that rely too heavily on incentive payments increases the risk of reps working independently and avoiding taking risks for the company. A lack of variable performance pay may demotivate sales representatives from working at their highest potential.
Here are a few tips to help you manage your compensation strategy and sales compensation plans effectively:
- Compensation is based on the degree of control of a salesperson.
Incentives can be lower if reps enlist the help of other employees or if your brand’s positioning does most of the selling for you.
- Measurement of individual performance in variable pay compensation.
What sales reps can control should be held accountable. A person’s salary is at risk because team performance may not be seen as fair, and could lead to higher turnover rates as a result.
- Aim to avoid an unbalanced variable pay structure.
The level of this pay incentives is determined by the sales team’s roles and responsibilities. If, for example, you have more control over the results, then variable pay is higher. For example, An Account Executive is paid more than a Customer Success Representative (CSR) because the Account Executive has more impact on the deal closure.
Who is Eligible for Variable Pay and Who is Not?
Diverse opinions exist among companies when it comes to the issue of variable pay. It’s not uncommon for companies to use incentives as a part of their new pay system. But the percentage value for the different types of pay varies from one company to another. Workers who do not meet their targets or achieve fixed goals are not eligible for this pay.
Different Basis of Variable Pay
Incentives Based on Variable Pay Compensation
To his weekly salary of $500, an individual receives a commission from a farm equipment company. As a result, his income is subject to change. He may have a week where he makes no commission sales and receives only a $500 check. Due to the sale of heavy machinery the following week, he may make an extra $1,500. As a result, his salary fluctuates. With his new concept of new pay system, he will be rewarded for selling high-priced equipment in addition to helping existing customers with parts and services.
Sales as a Percentage of Variable Compensation
As a media advertising executive, an individual is responsible for managing several different accounts. Each month, he receives 5 percent of all advertising dollars paid by his clients in addition to the hourly rate he receives. He is therefore compensated based on the amount of money his client pays.
Incentives with Variable Compensation
Information technology programmer in Japan works for a project (IT). According to his employment contract, his hourly wage is $65 per hour. His bonus package is determined by whether or not his projects are completed on time and what percentage of the code he writes passes the testing requirements. As a result of his new pay compensation, he is under pressure to meet deadlines and write the right code.
Pay Based on Peer Recommendation
Using newer tools like Motivation and Bonus, employees can give coworkers feedback and bonuses based on their work—from high levels of workplace performance to showing how they live the company’s core values. Motivating employees to do the right thing on the job to receive bonuses or rewards from their peers can improve teamwork.
Conclusion
In today’s world, employees want more than just a paycheck. For them, a complete package is a must that will justify the extra effort they put in for their employer’s benefit. Because of this, they rely on variable pay to motivate and retain their employees. Also, it’s a way for them to earn extra money and increase their basic salary at the same time.
