Variable Pay Is on the Rise: What the Data Show

This is an excerpt from PayScale’s 2017 Compensation Best Practices Report. Didn’t get your copy? Download it today.

A rich compensation mix encompasses much more than just base pay alone. There are bonuses, incentives, benefits and much more. Together, these pay elements create the total rewards package for employees.

Variable pay can also be a powerful manifestation of culture. Why not offer spot bonuses for individuals who show strong examples of the company’s core values? If an organization values collaboration, why not give a bonus to the individual who stayed late helping a coworker finish a project? If an organization values boldness and risk-taking, you could turn some heads by rewarding a failed project, simply because an individual was bold enough to try something new.

The prevalence and variety of variable pay has increased over time, and this year’s data shows that variable pay continues to be a prominent player in the modern compensation landscape. Approximately 74 percent of all organizations surveyed said that they offer some type of variable pay. That number is even higher among top-performing companies — who are more likely to incorporate variable pay in their compensation strategies (82 percent versus 73 percent of typical companies).

The larger the company, the more likely they are to provide variable pay. In fact, 85 percent of enterprise companies offer variable pay, versus just 69 percent of small companies.

Variable pay is not only becoming more common; it’s also becoming more frequent. While it’s still most common to do bonuses or incentives on an annual basis (56 percent), that number has decreased significantly since last year’s survey (67 percent). Companies are more likely than last year to do bonuses or incentives on a quarterly (16 percent) or monthly (10 percent) basis.

Frequency of Bonuses or Incentives 2017 vs. 2016

Organizations use a whole host of variable pay options to reward employees, some of which are more typical than others. While individual incentives remain the most common (64 percent), a quarter of organizations are using team incentives. Spot or discretionary bonuses remain popular (46 percent) as well.

Top-performing companies are more likely to give bonuses overall, in particular individual incentive bonuses (71 percent versus 62 percent of typical companies), team incentive bonuses (32 percent versus 24 percent of typical companies) and market premium bonuses (6 percent versus 4 percent of typical companies).

The pervasiveness of bonuses tends to increase with company size. Small organizations are less likely to give a retention (13 percent) or hiring (15 percent) bonus, while it is common practice for just about half of enterprise organizations to give retention (49 percent) or hiring (53 percent) bonuses.

Bonus Type by Organization Size

While the same percentage of companies gave bonuses as last year (74 percent), those who did give bonuses were more likely to use a wider variety of bonuses. Companies are making use of the full variable pay mix, incorporating more retention bonuses, hiring bonuses and spot bonuses, to name a few.

Bonus Type 2017 vs. 2016

Moral of the story? It’s time to get familiar with all the types of variable pay that fall under the umbrella.

Want more insights into what your peers are doing in compensation this year? Check out the 2017 Compensation Practices Report.

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Does your organization offer variable pay? We want to hear from you. Share your story in the comments.

Image: via Flickr

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