A variable remuneration can be used to stimulate employee engagement and is an important and useful process for achieving challenging results, as well as working to attract new talent. Much more than a simple process for recognizing merit and results, variable remuneration needs to have a correct definition of benefits policies, be calculated carefully and implemented through a program that really recognizes the employees who make the most effort or have a positive impact on the company.
Variable remuneration is provided as a bonus, incentive payment or commission, based on people's involvement and enthusiasm in their day-to-day work and the results they achieve. It differs from basic salary, which is fixed and paid regardless of whether targets are met. Remuneration and salary together are known as a remuneration mix.
How variable remuneration works
Based on two main factors, the performance of the employee and the performance of the company, variable remuneration is a program that can provide the company with a powerful and adaptable model for recognizing employees for their contributions to achieving results. Through planning, the HR team, together with senior management, must explain to the teams exactly what the company's goals to be achieved, which performance indicators (KPIs) will be monitored and what the remuneration will be. Variable remuneration can be communicated in advance as an incentive or presented as a reinforcement or/and bonus after results have been achieved.
It's important to have a plan for targets and KPIs that reflect the metrics that matter most to the company. Furthermore, care must be taken between teams to encourage collaboration and not rivalry for the "prize"; therefore, sending periodic reports, monitoring results and being transparent indicates that everyone is working together to achieve the targets. In this process, leaders are rewarded for their responsibility in their role, and are also rewarded.
Benefits of variable remuneration
As an incentive, the aim is to share the success of the results with the employees, i.e. when the company is successful, the employee is successful and is rewarded with a performance-based award. One of the main benefits of variable remuneration is the engagement of people with their activities and their interest in achieving goals. With this vision, teams remain better prepared to solve problems creatively, generate new ideas, optimize processes, improve services and/or products. Other benefits include:
- Greater productivity: With the variable remuneration process, employees tend to work harder to improve their performance and achieve their goals. As a result, it is possible to obtain greater productivity from the individual or the team;
- Better involvement: Allows talented employees to be recognized based on their results, stimulating more involvement, engagement and commitment to the company;
- It stimulates the attraction and retention of talent: By using the variable remuneration model, companies are able to attract the attention of people seeking growth based on bonuses that can be linked to productivity or profitability. From an internal point of view, it strengthens employer branding with a lower turnover rate;
- It correlates performance with results: It's simpler so that employees can understand the importance of their individual work and also make them feel part of a single team and that with shared effort it will be possible to achieve the goals. In this way, people know how much their performance has added to the end result.
Types of variable remuneration
Bonus: The bonus can be any desired performance and the results can be projected based on a specific period. It is a bonus for employees who have performed beyond expectations and who have excelled in their job. Bonus payments are a variation on salary and do not form part of remuneration. They are completely personalized and can be changed at any time;
Shared bonus: Rewards results that are measured directly according to the results achieved by the company. It is a variable payment in which the whole company wins.
Profit sharing - PPL: This is a collective benefit that rewards all employees equally at the end of a period if the expected profit is achieved. The aim is for a percentage of the company's profits to be distributed among employees;
Profit sharing - PPR: Happens when the company remunerates the employee based on previously defined goals and objectives. Unlike the PPL, profit sharing can be paid twice a year, at least three months apart;
Commission: Being well used for the sales sector, it is the incentive based on a percentage on each contract closed. The commission model considers two factors:
- Low fixed salary: considered a "subsistence allowance"
- Aggressive sales targets
Rewards: These can include not only cash payments but also gifts, trips, time off, among others. Rewards are recognized for being diversified, giving the company greater flexibility and generating greater employee engagement, as the prizes are chosen exclusively for those who have shown above-average results or have achieved the previously established target;
Incentive campaigns: These have the main objective of improving results in slower months or taking advantage of seasonal dates to exceed targets. Similar to awards, incentive campaigns are carried out on a one-off basis and the benefits can be varied, such as trips, gifts, time off or even cash prizes;
Stock Option: Grants employees the right to buy shares in the company under certain circumstances. They can be offered as an alternative to cash compensation.
Calculating variable remuneration
There are many ways of calculating variable remuneration, but it all depends on which type of remuneration the company chooses. Although the model is regulated by law, there is no rule that determines the policies for applying variable remuneration, so each company can adopt criteria that are in line with the reality of the business. It is important that the human resources team, together with the company's legal department, draw up a variable remuneration policy that is legal and has legal backing to avoid labor problems for the company.
The bonus calculation period is often a desperate time for the HR department. Calculating the bonuses and remuneration of all the company's employees can be an extremely delicate and time- and resource-consuming job.
The good news is that there are solutions on the market, such as Improvefy, which optimize the entire calculation process and calculate bonuses automatically based on goals, projects and multiples defined by the company's remuneration program. If you want to find out more about Improvefy's automatic bonus calculation solution, click here!
Planning is essential before implementing a variable remuneration policy, so the ideal is to talk to managers, financiers and employees, aligning the company's values and objectives. Variable remuneration is a fair way of recognizing the effort and performance of people who strive for a better result, so use this process to motivate the team and achieve challenging results.
