The term pay for performance is often used interchangeably with the term variable pay because this type of compensation moves pay from being a fixed cost to one that varies with employee performance. Variable pay is compensation that is tied to performance.
Variable pay plans can be considered successful if they fit the organization’s objectives, culture, and financial resources. Key performance indicators (KPIs) are the scorecard measures that tell managers how well the organization is performing relative to the critical success factors.
Under a straight piece-rate system, wages are determined by multiplying the number of units produced (such as garments sewn or service calls handled) by the piece rate for one unit. Individual employees may receive additional compensation in the form of a bonus, which is a one-time payment that does not become part of the employee’s base pay.
A non-monetary reward can consist of almost any material object, it is compensation given in a transaction which does not involve cash. Individual-level incentives are most effective when each employee’s performance can be identified, isolated, measured, and rewarded.
Many people approve of the concept of employee ownership because it provides employees with a voice in important matters regarding company operations and decisions. However, ownership can also be a disadvantage for employees because their wages, salaries and retirement benefits depend on the performance of the organization.
Sales commission programs can effectively drive the behavior of sales representatives, especially if the sales performance measures are based wholly or mostly on sales volume and revenues. Executive compensation refers to the financial payments and non monetary benefits provided to high level management in exchange for their work on behalf of an organization.
A compensation committee, which is a subgroup of the board of directors, generally has authority over executive compensation plans. In addition, shareholders of public corporations have the right to vote on executive pay packages.
