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Merit Pay and Variable Pay

Merit pay and variable pay both aim to reward high performing employees, but they differ in how performance is measured. Merit pay directly ties pay to an individual employee's performance compared to expectations, rewarding the best performers. Variable pay ties pay to company-wide metrics like productivity and profitability, rewarding contributions beyond normal job requirements that increase the overall success of the company.

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Ryan Buer
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324 views12 pages

Merit Pay and Variable Pay

Merit pay and variable pay both aim to reward high performing employees, but they differ in how performance is measured. Merit pay directly ties pay to an individual employee's performance compared to expectations, rewarding the best performers. Variable pay ties pay to company-wide metrics like productivity and profitability, rewarding contributions beyond normal job requirements that increase the overall success of the company.

Uploaded by

Ryan Buer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MERIT PAY and VARIABLE PAY

SIMILARITIES AND DIFFERENCES


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WHAT IS MERIT PAY?
• Merit Pay or merit-based pay is defined as a payment or a
reward that is given to the highest performing worker.
• Merit pay is designed to reward and recognize the
employees who perform best in their roles for exceeding
expectations.
• Merit pay is dependent on the performance of the
employee.
• The better the employee performs, the more pay he will get.
The name itself is the definition of merit pay.
• Whenever an organization wants a job to be done quickly,
merit pay is the best way to go.
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• Variable pay, also known as performance pay, is used to
recognize and reward employee contributions over and
above normal job requirements for a company's productivity,
profitability, quality, etc.

• The purpose of variable pay is to encourage employees to do


more work or perform better than routine work.

• In this, how and how much has the employee contributed to


increasing the company's productivity, profitability, or
quality?
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What is variable pay?
• The variable pay depends on you and your company's
performance. Therefore, most such schemes have the target and
the actual payout.

• It is one of the five essential components of the company's


rewards for its employees. It is a specific percentage of fixed pay.

• Other reward components include fixed pay (salary and


additional cash allowances), retirement (pension-related pay
benefits and perks (vacation, medical, car, insurance etc.)

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Significance of variable pay
• Variable pay is employee compensation that changes.

• Variable pay is any number of bonuses, incentives, commissions


and other cash rewards depending on the performance of the
employees.

• On the other hand, basic pay is fixed and paid even if the
employees have met their objectives. Variable pay and basic pay
together are known as a pay mix.

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Significance of variable pay
• Employers often use variable pay to motivate their employees
and reward them for their best job performance.

• This is an additional payment that may accompany the salary and


may come in the form of an alternative compensation instead of
cash.

• People vary depending on their level of employment, job


performance, stage of life, financial goals and reward
calculations against personal risk, and how much they are
capable of for variable pay.
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