How it works

Incentivizing employees to perform at their best—while balancing allocations across the organization—should be a priority for senior leadership. While defining strategic variable compensation plans entails diverse challenges for the organization, many years of practice have shown their power to recognize and share with employees the value they bring to the organization. It also helps emphasize what the organization, team, and individuals need to do to get recognized with an incentive. In essence, targeted behaviors and outcomes are driven if organizations measure what they want to emphasize at distinct functions and organizational levels.

There are multiple reasons why variable compensation is so prevalent in the present time. Employees in jurisdictions like the U.S., Japan, Germany, the U.K., and Brazil often expect some variable pay as part of their employment. Other jurisdictions follow their example and replicate robust practices within their context when feasible. As such, should the organization only offer base pay to candidates in those countries or regions, attracting top applicants for open roles would be a significant challenge. It would further discourage current employees from stretching themselves and reaching their full potential.