Editor's Note: Today's post comes to us courtesy of guest contributor Jacque Vilet.
What do we mean by variable pay? Simply put ---- variable pay is pay that fluctuates over time as opposed to fixed pay which remains the same. Base salary is an example of fixed pay. There are lots of different examples of variable pay plans but the major types are:
• Pay linked to output ---- piecework like Nike would pay for the number of shoes produced
• Individual/team awards ---- pay for achieving pre-set performance goals
• Share in company’s profits --- employees share in company profits
• Sales commission plans --- salespeople are paid commission (bonus) based on quota achievement
Variable Plans by Country
Variable pay plans are found worldwide in almost all countries. They are not the same worldwide --- there are differences as well as similarities. For the sake of this article we will define a variable pay plan as an annual or short term plan. Let’s take a look at how variable pay is viewed and designed in various countries (click to view the table below in a pop-up window).
More global corporations across the world today are using bottom-line results for their performance metric as opposed to individual goals such as "management by objectives", which were popular in the 80’s and 90’s. Variable pay plans have grown in popularity with 86% of global corporations in all countries having at least one variable plan:
• 91% in Asia
• 90% in U.S.
• 85% in Europe
• 81% in Latin America
• 80% in Canada
Future Trends in Variable Pay
Due to economic uncertainty around the world as well as quickly changing global market activity, the following are being discussed as possible future trends:
• Less cash for salary budgets
• Zero to very small salary increases may continue for the foreseeable future
• Fund “virtual pay increases” with variable pay results
• Focus rewards on total corporate results and ROI
• Matching competitive practice may not be the primary concern
• No payout if corporate results do not meet target --- threshold of financial performance
• Increase employee “line of sight” to corporate goals for increased chance of payout
The top three drivers in variable pay taken from a 2010 Hay Group global research study are:
• Better alignment with corporate strategy
• Improved corporate performance
• Better alignment or “line of sight” between corporate and individual performance
Rethinking variable pay strategy may involve:
• A move toward a global corporate variable pay approach rather than division or business unit plans
• A single plan with the ability to serve as a global driver of behavior, marshall the collective strength of the global workforce and unify divergent geographies
• Provide a global focus on corporate results
• Increase “line of sight” between employee goals and overall corporate goals
Jacque Vilet, President of Vilet International has over 20 years’ experience in International Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has worked with both local nationals and expatriates and has been an expat twice during her career. Jacque holds the CCP, GPHR and SWP (Human Capital Institute). She is a member of WorldatWork, Society of Human Resources Management and the Human Capital Institute. She is co-chair of the Global HR professional emphasis group for the Dallas chapter of SHRM. She is a regular contributor to HCI, HR.com and IHR Forum.
Image: Creative Commons Photo "Old Globe" by ToastyKen
Excellent post, Jacque, and very informative. Another reason why one size never seems to fit all, does it? I'm sure that your information will be copied and saved by a number of international practitioners. I know I will .
Posted by: Chuck Csizmar | 11/14/2011 at 07:30 AM