Variable pay is compensation awarded to employees based on their performance. This is a cash incentive to help encourage employees to be productive and achieve their goals. Companies may choose a variety of ways to give variable pay, and not all forms are monetary.

Variable pay, also known as incentive pay or performance-based pay, refers to the portion of an employee’s compensation that is contingent upon their performance or the achievement of specific business objectives.

Performance bonuses can be awarded as a lump sum payment, a percentage of the employee’s salary, or as part of a variable pay plan. They are commonly used to motivate employees, improve productivity, and align individual performance with the organization’s strategic objectives.

When designing packages, boards must make decisions about the proportion of fixed versus variable pay, short-term versus long-term incentives, cash versus equity, and group versus individual...

Variable pay has become a common practice in employment because it offers employees additional compensation beyond their base salary. Two frequently used forms of variable pay are bonuses and incentives. While they may seem similar at first glance, there are distinct differences between the two.