How companies can use pay linked

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How companies can use pay linked

We all know about the system of increments and bonuses in the Government and Public Sector. However, the quantum of bonus and increments was so small that it hardly had an effect on the pure play linking pay to performance. The resulting inefficiencies in the government and public sector have been extensively reported.

In recent times, the concept of linking pay to performance has taken on an entirely new dimension with the introduction of variable pay.

This article discusses some aspects of the variable pay and performance linked incentives in place in the contemporary organizations. How it Works One of the key components of this variable pay plan is the strategy of linking pay to performance.

This is a strategy that has been followed by many Multinational companies across the world and consists of the overall pay structure being broken down into components. These components would include the basic pay, benefits and the variable pay. The variable pay would be paid out as a percentage of the whole subject to the performance of the employee.

Accordingly, the performance of the employee determines the variable component of the salary. The international practice is to increase the component of the variable pay higher according to the hierarchy.

Categories of Variable Pay Further, there can be different categories of variable pay. The first component of the variable pay can be linked to individual performance, the second component can be linked to division performance and the third component can be linked to company performance.

The idea behind variable pay is that it provides an incentive for employees to feel a sense of ownership and take responsibility for their jobs as well and relate to the overall division and company.

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By introducing variable pay, the management would ensure that employees are motivated to contribute individually and as a unit and a division and finally as part of the whole company. Conclusion In conclusion, this article has discussed variable pay and performance linked incentives as a necessary evolution to a system where merit is recognized more than it is being done now.

Given the fact that many organizations in India follow this approach, it is time for the employees and prospective employees to attune themselves to this concept and work accordingly.The essential tech news of the moment. Technology's news site of record. Not for dummies.

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How companies can use pay linked

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Variable Pay and Performance Linked Incentives