Currently variable remuneration (VR) is already considered an important tool for successful management. However, everything will depend on how the bonus program is developed, aiming for employee satisfaction and engagement.
This remuneration model is a way that organizations have found to value their talents and boost their results. Fixed remuneration is no longer the only attraction companies use to recruit new talent.
Therefore, it is essential to know the advantages, disadvantages, types of rewards, applicability, among others, in order to guarantee satisfactory deliveries and increasingly positive results.
What about your company? If you want to achieve your goals through variable remuneration and know how to develop and engage employees in the long term, then this article will help you with these important questions, read on!
In this material you will see:
- What is Variable Remuneration?
- What are the differences between variable and fixed remuneration?
- How important is variable remuneration in organizations?
- What are the advantages and disadvantages of variable remuneration?
- Main types of variable remuneration
- Step-by-step implementation of variable remuneration
- How to calculate variable remuneration and mistakes to avoid
- Automatic variable remuneration calculation with Improvefy's platform
Let's go?!
What is Variable Remuneration?
Variable/flexible remuneration, or even "bonuses", is a payment program that is separate from what has been agreed as the employee's fixed salary. In other words, it is a resource used by companies to value and motivate their employees, increasing their productivity and thus boost their results.
This method of remuneration is considered a way of rewarding employees for their individual and collective performance. This benefit will be a complement and will therefore also serve to attract and retain talent within the organization.
In this scenario, the formula for calculating this incentive will vary according to the type of remuneration chosen by each company. The variable remuneration policy is directly linked to the goals and objectives stipulated for each employee.
On the strategic side, it is an excellent tool for broadening the organizational culture culture of the company, highlighting its competitive edge and encouraging high performance from its employees.
It's worth remembering once again that variable remuneration does not replace the basic salary, which is fixed in each employee's agreement. Therefore, there is no way to establish a bonus policy without first having everything well planned and clear for everyone involved.
What are the differences between variable and fixed remuneration?
It is important to establish the principles regarding the concept of remuneration in both cases, precisely so that there are no misunderstandings. Therefore, check out what these concepts mean and understand what differs between them.
Fixed Remuneration
Provided for and guaranteed by law, fixed remuneration is nothing more than a basic salary that does not change over the months. It is payment for hours and days worked, which can also include benefits such as: health insurance, health insurance, transportation vouchers, meal vouchers and food vouchers, for example.
Fixed remuneration is characterized by having a monthly frequency, for example, and a pre-established amount.
Reward Program
As the name implies, this type of remuneration varies greatly, as it can include various other benefits and be directly linked to the achievement of goals and objectives, which differ from company to company.
This can be bonuses for achieving targets, commissions, profit sharing, among others. It is characterized by the possibility of variation between one amount and another, without pre-defined values.
How important is variable remuneration in organizations?
It is essential to ask yourself how important this type of remuneration policy is and what advantages it can bring to organizations. Since they are based directly on the establishment of targets and performance indicators such as the OKRS with well-defined objectives.
In this scenario, it is also necessary to analyze the positive impact that a bonus program has on employee productivity and performance.
With a constantly evolving market and a number of competitive advantages, variable remuneration can bring decisive benefits for attracting and retaining employees.
Professionals tend to structure and plan their careers based on short- and long-term strategies, which includes the real possibility of increased earnings.
In this way, it is the perfect incentive for employees to achieve excellence in their results and boost their performance within companies.
On the other hand, for organizations, variable remuneration represents the tool they need to strengthen their reputation and credibility in the market. What's more, they reduce costs, fixed expenses and Turnover rates.
Adopting a variable remuneration program can have many advantages, as long as it is carried out well. Find out about the main ones below!
What are the advantages and disadvantages of variable remuneration?
Care must be taken when implementing variable remuneration in your organization. This is all so that the benefits don't become "headaches" and end up having the opposite effect, causing the company a great deal of damage.
Here are some of them:
Advantages
- Increased productivity
- Quality deliveries
- Greater employee satisfaction
- Strengthening the company's mission, vision and values
- Promoting the individual and collective growth and development of employees
- Competitive edge in the market
- Retaining talent in the company
Disadvantages
- Difficulty analyzing performance indicators
- Non-compatible rewards can lead to employee frustration
- Lack of clarity on goals can lead to demotivated employees
- Focus on quantity rather than quality.
Generally speaking, the variable remuneration program, when well implemented in a company's organizational culture, is one of the most efficient management tools. This is because it becomes a successful strategy, as it helps to retain talent and reduce employee turnover.
Main types of variable remuneration
Now that we've explained what VR is and what its advantages and disadvantages are, let's take a look at the main types of variable remuneration that exist within an organization.
See below:
PLR
The company's Profit Sharing Program is regulated by law 10.101/200. It aims to distribute the profit made by the company to all its staff.
For this calculation, either a fixed amount or a percentage of the organizational results can be taken into account.
PPR
Unlike the PLR, the Profit Sharing Program focuses on rewarding employees according to their results. In other words, the employee gets paid when they achieve the goals and objectives set by the company.
The PPR is also regulated by law, like the PLR, and is also a way of promoting employee engagement and commitment to the organization's collective goals.
Bonus
Many organizations choose to adopt bonus remuneration as a way of encouraging employee performance in their results.
This could be something totally defined by the company, a bonus for a certain target achieved, for example in a given period.
Commission
Commissions are more commonly used in segments that work directly with the commercial sector, i.e. with professionals who need to hit their targets through the number of sales.
It is defined as an extra incentive for the employee, at the end of each sale, to earn a percentage for each deal closed. In this way, the sales team can be much more committed and dedicated to achieving high performance.
Step-by-step implementation of variable remuneration
Once you've defined that your company will have a VR program, it's time to understand what needs to be done for the implementation to be successful and achieve good results.
The first step is always to carry out a strategic planningBut of course, to ensure the success of this stage, you first need to gather information and data that will help you understand the company's overall picture. In this way, you can envision your main needs and the goals that need to be achieved in a given period.
Next, establish the indicators (KPIs) that will guide all the other steps of strategic planning. It is through these indicators that variable types of remuneration can be implemented.
Based on KPIs, the performance of teams and individual employees can be analyzed and monitored as the process unfolds.
It is at this point that the tools that will be needed for the process must be included in the planning.
Thus, goals and objectives can be set and calculations made according to what is decided at this stage, such as: the exact value of the VR, the period to be monitored, percentage, among others.
The rules of the Variable Remuneration program need to be objective and transparentso that everyone can visualize it in a simple way. In this way, it will be easier to adhere to the company's bonus culture and the results can be even better.
Once the details for implementing Variable Remuneration have been defined and put into practice, it's time to monitor the development. You need to closely analyze the progress of incentive campaigns to ensure their effectiveness.
At this stage of the program, those responsible must understand the effectiveness of the VR policy and measure employee satisfaction. They must also make sure that the company's goals and objectives are aligned with those of the employees.
Monitoring the chosen strategy is essential to test its performance and make possible improvements and adjustments when necessary.
How to calculate variable remuneration and mistakes to avoid
After all, how do you calculate variable remuneration and not make mistakes during the program?
In general, to start the necessary calculations, everything will depend on organization and commitment to the program.
It is therefore necessary to use the right tools to keep track of each employee's working hours and automate processes. There are several ways of calculating VR and everything will depend on which type is chosen by the company.
In companies with a large number of employees, it is almost impossible to carry out this calculation using spreadsheets, which only open up the possibility of more errors. In these cases, it's best to automate the process with more suitable software.
Therefore, the amount to be distributed can be based on the individual performance of each employee or even on the achievement of company targets.
You have to be aware of the focus of the program and not fall into common mistakes that many companies make, such as:
- prioritizing quantity of deliveries rather than quality, just to reach a predetermined number;
- put too much pressure on employees and end up generating frustration and anguish;
- not making the goals and objectives clear, which is detrimental to the performance of the teams;
- among others.
To avoid all this, software that specializes in the operational efficiency of processes and the automation of calculations is recommended!
Automatic variable remuneration calculation with Improvefy's platform
Whatever stage you are at in the process of implementing variable remuneration in your company, you need access to an excellent management tool. So that the workflow is efficient and organized.
Analyzing this scenario, our bonus module, which corresponds to variable remuneration, has all the elements that the team responsible will need to work on and develop. And so reduce the work and automate the calculations, avoiding possible errors.
The software offers three main menus: program, particulars and calculation.
In the program menu, the company defines the program in which they will work within the organization. In other words, the weights that the goals will have for each employee will be defined, whether they are corporate or individual goals.
Also on this topic, the module offers the possibility of including the following in the employee's bonus calculation performance and competencies. And all of this can be customized according to the hierarchical level of each employee.
And in the particulars menu, you can see, for example, employees who have changed areas, been dismissed, promoted or who have received new targets in the middle of the year. It's a totally individualized screen with the particularities of each employee.
And at the end, the calculation menu corresponds to the automatic and easy process of calculating bonuses, which simply and quickly generates the result. The software also gives you the option of exporting this result or making it available on each employee's dashboard.
And another very important feature within the VR program is the unlocking trigger that corresponds to the employee's bonus payment. In other words, management will be responsible for defining which goals will become the triggers for bonus payments.
In this context, the company can set its net profit target directly in the software, for example. In this way, payment only takes place when this target is reached, regardless of whether other targets have been reached, if the trigger is not met the bonus payment is not made.
And we can't fail to mention the goal approval workflowwhich is characterized as a function that allows those responsible to easily approve more bureaucratic processes by giving their "ok".
And this action is all done within Jano, it is the necessary endorsement to proceed with the activities, agreeing with what is registered on the platform, be it panel, bonus salary, among others.
In an intelligent and effective way, Jano offers easy-to-use visualization panels, automatic calculations, bonuses with multiple ranges of achievement and a multitude of other ways to make your Variable Remuneration program easier, clearer and simpler.
Get to know Improvefy's Variable Remuneration module! Click here.
