Variable Pay

Variable pay is the portion of sales compensation determined by an employee’s performance. When employees hit their goals, variable pay shows up as a bonus, incentive pay, or commission. Base salary, by contrast, is fixed and paid out regardless of whether employees meet their goals. Together, variable pay and base salary make up what is known as the pay mix.

According to the U.S. Office of Personnel Management, employers typically pay variable pay for success tied to personal, team, or company performance. Organizations that do this well tend to have a clear business plan and key performance indicators that reflect the metrics that matter most. Variable compensation can be communicated in advance as an incentive, or given afterward as a reinforcement or bonus. Most employers pay it out in the form of cash, stock, or paid time off.