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The Latest Trends in Variable Pay

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2 road-based variable pay concepts and practices have experienced significant transformation over the last two decades. While executives have historically participated in bonus arrangements, the remaining population of workers only became eligible for variable pay in the late 1980s when fewer than half of U.S. companies provided these opportunities more broadly. Today more than 90% of U.S. companies have broad-based variable pay programs. In the short time broad-based variable pay has been in effect there have been striking changes in funding levels, plan design types and eligibility. Several factors are responsible for the increased reliance on variable pay for rewarding the broader workforce. These plans are effective in getting employees to pay attention to key company goals and initiatives since part of their compensation is tied to results. Employees think differently and change their behaviors to accomplish activities they think will yield a higher bonus payout. The key is to make sure that the focus and change in behaviors lead to positive outcomes and don't undermine other important factors such as safety, margins, and customer service. Variable pay creates the opportunity to link employees and leaders to aligned objectives which results in stronger teamwork that enhances organizational results. This tighter alignment of employee and leader efforts is also a benefit that shareholders appreciate. Variable pay provides greater flexibility to organizations in managing their compensation costs during volatile business cycles. Unlike base salaries, which are compounding fixed costs, bonuses hit the balance sheet for one year and should only do so when organizational performance results warrant it. Variable pay has also become a major component in organizations efforts to pay for performance. B

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