Variable Pay is an Active Part of Competitive Compensation Programs

Despite the economic uncertainty in the U.S. right now, organizations are still pushing forward with including variable pay as part of their overall compensation strategy and compensation programs.

Bonus plans at all levels of roles are still in action and seek to provide extra pay for meeting specific outcomes and goals, on top of the employee’s agreed upon base salary. Several types of bonuses may be utilized by an organization, such as:

• Spot bonus
  • Use: to recognize a successful project and/or moment of exceptional performance.
• Retention bonus/longevity bonus
  • Use: to reward increasing tenure at the same organization.
• Sign-on bonus
  • Use: offered to new hires to encourage joining the organization/accepting a job offer.
• Referral bonus
  • Use: to reward employees who recommend a candidate who is successfully hired by the employer.
• Performance bonus:
  • Use: to provide additional incentive to meet business-specified metrics tied to organization goals

Performance bonus programs often (and should) include specific metrics before payouts occur.

Bonus targets can be set by job level, type of role, specific positions, or something entirely different. Generally, it is a best practice to have consistent bonus targets for roles of comparable character to ensure individuals performing similar work are eligible for similar pay. A pay-for-performance strategy, whether each individual employee achieves the bonus or is eligible for a bonus payout, should be based on the performance factors outlined as part of the overall performance management program. Eligibility for the same level of bonus payout does not necessarily guarantee each employee will receive a bonus, but that the opportunity to earn it is equal.

Some organizations may use multiple bonus types as part of their variable pay strategy to reward for different reasons. It’s important to explicitly state who is eligible and under what circumstances for a specific bonus. This information should be included in an organization’s general HR policies. Bonus types such as spot, sign-on, referral, and retention bonuses, including eligibility requirements and the expected timing for payout, can be valuable to have in an employee handbook as well. Including eligibility guidelines, for example must be employed for a minimum of 6 months to be eligible for a spot bonus, provides necessary clarity to employees and managers.

Additionally, any compensation offered through a variable pay plan should be reviewed for overall pay equity and compliance with the Oregon Equal Pay Act or equal pay laws in your state.

You can review our Variable Pay Guide and our Equal Pay Act Guide in Cascade’s HR Library or reach out to our compensation team for custom support!