Hi all,
Can anyone explain variable pay to me? We are recruiting marketing executives, and their basic salary would be $7000. What would be their variable pay, and how do we calculate it? Please help me as soon as possible.
Thank you.
From India, Hyderabad
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4Can anyone explain variable pay to me? We are recruiting marketing executives, and their basic salary would be $7000. What would be their variable pay, and how do we calculate it? Please help me as soon as possible.
Thank you.
From India, Hyderabad
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Variable pay should be linked to performance. In the case of marketing executives, it can be fixed as a percentage of the revenue they generate for the period subject to the achievement of a minimum target revenue. Hope this would help you.
From India, New Delhi
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From India, New Delhi
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Dear Diva,
Variable compensation, by definition, means compensation at risk and is therefore tied to performance measures - at the individual, team, or organizational level.
The frequency of the variable compensation payout could be biannual (every six months) or annual. However, I have also experienced monthly and quarterly payouts in some companies. Typically, in such cases (where there were monthly or quarterly payouts), the performance criteria underlying such a payout was either team or individual performance against pre-established targets or some combination of both team and individual performance. I have also witnessed three-level filters being applied to determine the variable compensation payout. The first filter is the organizational performance. For example, if the organization has not reached a particular milestone, then, regardless of whether some department in the company has overachieved its targets, there will be no variable payout or the payout may be less than the proportion of overachievement of the department. The second level of the filter would be the department's performance. This means that if the organization has achieved its targets but the department has not, then individuals in that department do not get the performance-linked incentive or less than the proportion that they could have expected based on their individual achievements. The last filter is usually the individual's performance.
The number of filters and their relative weightages in determining individual performance-linked incentive payouts, as well as the methodology to link the payout to these filters, flow directly from the values and compensation philosophy of the organization.
Regarding the quantum of variable compensation for sales personnel, I would suggest that it be fixed at least 40% of the fixed annual compensation. For example, if the fixed compensation is Rs. 100, then the variable should be at least Rs. 40. It is not uncommon to have 50:50 or 40:60 ratios between fixed and variable. The idea is that the salesperson should not be resting on the comfort of a fixed salary but rather earn most of their income through variable compensation linked to the achievement of sales quotas. An enthusiastic salesperson should realize the significant upside potential of earning mainly through the variable compensation route since overachievement against quotas should typically result in more than 100% variable payout. Some organizations have a sliding scale mechanism to determine variable compensation payout. This means that if the individual achieves 60% of the sales quota for a period (month, quarter, or year), they get 60% of their variable, and a 120% achievement will result in a payout of 120% of the variable compensation. However, it is not uncommon for organizations to lay down 'Floors' and 'Ceilings'. 'Floor' means the minimum achievement required for a person to qualify for a payout. For example, if the 'Floor' is kept at 50% of quota achievement, then if an individual achieves 40%, they will not receive any payout. Similarly, if the 'Ceiling' is defined as 120% of the achievement, then if an individual achieves 130% of the quota for the period, they would get only 120% of their variable compensation as the maximum payout and not 130%. In some organizations, they follow the 'Accelerator' principle, which means that the payout for more than 100% achievement gets multiplied by a certain factor for different ranges of overachievements.
Hope this has been helpful.
Thanks,
Snoopypryer.
From India, Ghaziabad
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Variable compensation, by definition, means compensation at risk and is therefore tied to performance measures - at the individual, team, or organizational level.
The frequency of the variable compensation payout could be biannual (every six months) or annual. However, I have also experienced monthly and quarterly payouts in some companies. Typically, in such cases (where there were monthly or quarterly payouts), the performance criteria underlying such a payout was either team or individual performance against pre-established targets or some combination of both team and individual performance. I have also witnessed three-level filters being applied to determine the variable compensation payout. The first filter is the organizational performance. For example, if the organization has not reached a particular milestone, then, regardless of whether some department in the company has overachieved its targets, there will be no variable payout or the payout may be less than the proportion of overachievement of the department. The second level of the filter would be the department's performance. This means that if the organization has achieved its targets but the department has not, then individuals in that department do not get the performance-linked incentive or less than the proportion that they could have expected based on their individual achievements. The last filter is usually the individual's performance.
The number of filters and their relative weightages in determining individual performance-linked incentive payouts, as well as the methodology to link the payout to these filters, flow directly from the values and compensation philosophy of the organization.
Regarding the quantum of variable compensation for sales personnel, I would suggest that it be fixed at least 40% of the fixed annual compensation. For example, if the fixed compensation is Rs. 100, then the variable should be at least Rs. 40. It is not uncommon to have 50:50 or 40:60 ratios between fixed and variable. The idea is that the salesperson should not be resting on the comfort of a fixed salary but rather earn most of their income through variable compensation linked to the achievement of sales quotas. An enthusiastic salesperson should realize the significant upside potential of earning mainly through the variable compensation route since overachievement against quotas should typically result in more than 100% variable payout. Some organizations have a sliding scale mechanism to determine variable compensation payout. This means that if the individual achieves 60% of the sales quota for a period (month, quarter, or year), they get 60% of their variable, and a 120% achievement will result in a payout of 120% of the variable compensation. However, it is not uncommon for organizations to lay down 'Floors' and 'Ceilings'. 'Floor' means the minimum achievement required for a person to qualify for a payout. For example, if the 'Floor' is kept at 50% of quota achievement, then if an individual achieves 40%, they will not receive any payout. Similarly, if the 'Ceiling' is defined as 120% of the achievement, then if an individual achieves 130% of the quota for the period, they would get only 120% of their variable compensation as the maximum payout and not 130%. In some organizations, they follow the 'Accelerator' principle, which means that the payout for more than 100% achievement gets multiplied by a certain factor for different ranges of overachievements.
Hope this has been helpful.
Thanks,
Snoopypryer.
From India, Ghaziabad
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Hi,
Snoopy's description of variable pay couldn't have been better. He/she has done a great job giving the entire thing in the most concise form.
I did a survey in 2007 on variable pay. The trends in variable pay among various sectors were as follows:
IT ITES FIN FMCG MFRG
Sales
Managers Top Level: 35-50% 20-35% 30% 12-25% 30%
Managers Middle Level: 20-30% 10-20% 15-30% 15-20% 12-25%
Managers Junior Level: 10-20% 10% 30% 10-20% 7-20%
Non Sales
Top Level Managers: 20-45% 15-35% 25% 15-35% 30%
Middle Level Managers: 10-35% 10-20% 15-20% 15-30% 12-15%
Junior Level Managers: 0-25% 5-15% 20% 10-20% 7-10%
There were many other findings. If you want it, you may write to me at
.
Regards
From India, Hyderabad
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Snoopy's description of variable pay couldn't have been better. He/she has done a great job giving the entire thing in the most concise form.
I did a survey in 2007 on variable pay. The trends in variable pay among various sectors were as follows:
IT ITES FIN FMCG MFRG
Sales
Managers Top Level: 35-50% 20-35% 30% 12-25% 30%
Managers Middle Level: 20-30% 10-20% 15-30% 15-20% 12-25%
Managers Junior Level: 10-20% 10% 30% 10-20% 7-20%
Non Sales
Top Level Managers: 20-45% 15-35% 25% 15-35% 30%
Middle Level Managers: 10-35% 10-20% 15-20% 15-30% 12-15%
Junior Level Managers: 0-25% 5-15% 20% 10-20% 7-10%
There were many other findings. If you want it, you may write to me at
Regards
From India, Hyderabad
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Hi snoopypryer, Thanks for the valuable info.Its very helpful. Pls keep sharing such valuable info. _________________________________________________________________
From India, Hyderabad
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From India, Hyderabad
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Dear all i m Arjun Bisht, as a Record Keeper HR. sir i want to change my profile for better career, i want join to Payroll section in hr please help me ASAP God Bless Many Thanx Arjun Bisht
From India, Gurgaon
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From India, Gurgaon
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There are so many definitions available for variable pay. Also, the percentage of variable pay compared to CTC differs from organization to organization and as per the requirements of that particular job profile. For example, sales profiles always have a bigger variable pay compared to their fixed component. In my opinion, the calculation of actual variable pay is very important and crucial for any HR professional.
While calculating variable pay, many points need to be kept in mind because, after all, it is part of compensation, and any mistake or irrational distribution of variable pay may lead to unrest among your employees.
In my opinion, the following points need to be kept in mind while designing variable pay:
1) Performance of Employee
2) Performance of Team
3) Performance of Organization
4) Grade/level of Employee
5) CTC of Employee
6) Total Kitty of variable pay distribution
The last point is very important because all other points can be included in variable pay calculation, but the last part of factoring the total kitty amount is difficult. This can be done by taking a weighted average of our calculation.
From India, Mumbai
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While calculating variable pay, many points need to be kept in mind because, after all, it is part of compensation, and any mistake or irrational distribution of variable pay may lead to unrest among your employees.
In my opinion, the following points need to be kept in mind while designing variable pay:
1) Performance of Employee
2) Performance of Team
3) Performance of Organization
4) Grade/level of Employee
5) CTC of Employee
6) Total Kitty of variable pay distribution
The last point is very important because all other points can be included in variable pay calculation, but the last part of factoring the total kitty amount is difficult. This can be done by taking a weighted average of our calculation.
From India, Mumbai
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It is the company that decides the variable pay in our organization. We have an 80-20 split for the non-marketing staff, including HR, Admin, Legal, Payroll, etc. For marketing, it's 70-30, so we need to rethink while deciding the base salary. It is a deciding factor at times as well and is linked to performance.
From India, Pune
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From India, Pune
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Hi Snoopypryer,
Excellent description. Not only for the corporate people, it was informative even for academicians like me who are handling compensation for MBA-HR students. Keep sharing valuable information like this. Thanks a lot once again.
Regards,
K. Anandhi
Sr. Lecturer, MBA-HR.
From India, Madras
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Excellent description. Not only for the corporate people, it was informative even for academicians like me who are handling compensation for MBA-HR students. Keep sharing valuable information like this. Thanks a lot once again.
Regards,
K. Anandhi
Sr. Lecturer, MBA-HR.
From India, Madras
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Hi to all, thanks a lot. Can anyone please explain to me what is TDS and how it is applicable? Ours is a small company, and we are paying rent monthly, nearly $16,000 for the year, totaling $1.96. How do we calculate what will be the deduction for the landlord? Please help me.
From India, Hyderabad
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From India, Hyderabad
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