Fixed Pay and Variable Pay

Fixed pay meaning
Fixed pay in cost-to-company refers to the fixed amount paid by the employer to the employee in
exchange for services received in the form of a fixed salary. Fixed pay is the accrual salary mentioned
in the salary slip, which includes the basic wage and multiple allowances. This indicates that the
employee has worked on all business days of the month and taken sanctioned leave according to the
company’s HR policies.
Fixed salary includes basic pay, dear allowances, house rent allowance, conveyance allowance and
other special allowances. Deductions are made from this salary towards Provident Fund
contributions and Tax Deduction at Source. Creating reports, budgets and other tasks not directly
related to boosting the company’s revenue are remunerated through fixed pay.
The employers’ pay scales and salary ranges recognise the level of education, knowledge, skill, and
experience required to perform the job. Salaries for executive-level positions usually are higher
compared to lower-level posts.
Salaries for jobs are affected by additional demographic and market-led factors. The availability of
jobs, people with the requisite skills and educational qualifications, CTC of the employee in his last
job and pay scales at peer companies are considered while deciding the salary of an employee.
Variable Pay is the portion of sales compensation determined by employee performance. When
employees hit their goals, variable pay is provided as a type of bonus, incentive pay, or commission.
Base salary, on the other hand, is fixed and paid out regardless of employees meeting their goals.
Together, variable pay and the base salary make up what is known as pay mix.
Variable Pay is basically employee compensation that changes. Variable Pay is any number of
bonuses, incentives, commissions, and other cash compensation that is dependent on employee
performance. Here is everything organisation need to know about Variable Pay including its types,
advantages, disadvantages, and more.
What is Variable Pay?
Variable pay is often based on two main factors: organisationr own performance and organisationr
company’s performance. So, most schemes evolved by companies have a target-setting and actual
paorganisationt based on that combination. Variable pay is one of the five main components of total
rewards in any organization and is usually a percentage of fixed pay.
Employers typically pay employees variable pay for success related to the personal, team, or
company performance. Variable compensation can be communicated in advance as an incentive, or
presented as a reinforcement or bonus after the fact. Many employers compensate employees with
variable pay in the form of cash, stock, or paid time off from work.
Types of Variable Pay Plans

There are 3 most common forms of variable pay plans that are in use today are mentioned below:
1. Bonuses
A bonus is a one-time payment to the employee that is not built into his or her pay rate. The basis of
the bonus may be any performance desired by the organization, and the payment schedule can be
designed like that of the standard hour or measured day work. Some organizations have adapted
their merit pay plan to a bonus plan. The base pay of all employees stays the same or increases by a
cost-of-living factor. Then the results of the merit pay plan are converted into bonuses that are
distributed in various ways, from a lump sum to add to each paycheck. The point, however, is that
the bonus is just for the current period and not built into the base pay.
Besides performance bonuses, there are other types of bonuses that are used by the organizations:
Hiring Bonus, Referral Bonus, Spot Bonus, Retention Bonus, Discretionary Bonus, Spot Bonuses, and
more.
2. Gain Sharing
This approach rewards outcomes that are direct measures of the success of the organization as
opposed to the success of an individual employee. A gain-sharing plan is a popular type of
organization-wide variable pay plan. The purpose of gainsharing is to tie the employee to the
performance measures. Although clear performance-reward connections can be made in these
circumstances, it is difficult to make a performance-effort connection.
3. Profit Sharing
A further option for tying employees to the economic success of the organization is by granting them
a share of the profits of the organization. This type of incentive is useful only in a profit-based
organization. Profit-sharing may be the oldest form of an organization-wide variable pay plan. They
were installed to deal with employee’s grievances over low salaries and to combat the feelings that
organizations made huge profits but paid workers very little of the gains. Later the idea of aligning
worker and management goals appeared.
Difference between Fixed Pay and Variable Pay in salary structure
Fixed Pay is what is defined as fixed and organisation will get the same salary as was mentioned in
the offer letter.
Organisationr package= Fixed Pay (X% of total package) + Variable Pay (100-X% of total package).
So variable pay is part of organisationr salary package. Organisation will get your fixed pay at the end
of every month but you will get your variable pay once in a quarter/half-year/year (may differ from
company to company).
Let us understand this with the help of an example. Let’s assume that a company is paying variable
pay each quarter.
Suppose your total monthly salary is Rs. 30,000. Out of which you are getting Rs. 25,000 as fixed
pay and Rs. 5,000 as variable pay. So you will always get Rs. 25,000 at the end of each month.
Now let’s suppose that your company announces the percentage of variable pay to be 80%, so you
will get 80% of your variable pay which is = Rs. 4,000.
Hence at the end of the quarter you will get: Rs. 4,000 X 3= Rs. 12,000.

Fixed Pay and Variable Pay

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Fixed Pay and Variable Pay

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Fixed pay meaning

What is Variable Pay?

Types of Variable Pay Plans

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