hi to all can any one explain me abt variable pay we are recruiting marketing exceutives their basic salary would be 7000 wa would be their variable pay, how to calculate variable pay pls help me as soon as possible
From India, Hyderabad
4From India, Hyderabad
Dear Diva,
Variable compensation by definition means compensation at risk and is therefore tied to performance measures - at the individual, team or / and organizational level.
The frequency of the variable compensation payout could be biannual (every six months) or annual though I have also experienced monthly and quarterly payouts in some companies but typically, in such cases (where there were monthly or quarteryl payouts), the performance criteria underlying such payout was either team or the individual performance against pre-established targets or some combination of both the team and individual performance. However, I have also witnessed three level filters being applyied to determine the variable compensation payout in the form of the first filter being the organizational performance i.e. if the organization has not reached a particular milestone, then, regardless of whether some department in the company has over-achieved its targets, there will be no variable payout or the payout may be less than the proportion of overachievement of the department. The second level of filter would be the department's performance. This means that if the organization has achieved its targets but the department has not, then, individuals in that department do not get the performance linked incentive or less than the proportion that they could have expected on the basis of their individual achievements. The last filter is usually the individual's performance.
The number of filters and their relative weightages in determination of indivdiual performance linked incentive payouts as well as the methodology to link the payout to these filters flows directly from the values and compensation philosophy of the organization.
Regarding the quantum of variable compensation for sales personnel, I would suggest that it be fixed at atleast 40% of the fixed annual compensation i.e. if the fixed compensation is Rs. 100, then the variable be at least Rs. 40. It is not uncommon to have 50:50 or 40:60 ratios between fixed and variable. The idea is that the sales person should not be resting on the comfort of a fixed salary but rather, earn most of his income through variable compensation linked to achievement of sales quotas. An enthusiastic sales person should realize the significant upside potential of earning majorly through the variable compensation route since overachievement against quotas should typically result in more than 100% variable payout. Some organizations have a sliding scale mechanism to determine variable compensation payout which means that if the individual achieves 60% of the sales quota for a period (month, quarter or year), he gets 60% of his variable and a 120% achievement will result in a payout of 120% of the variable compensation. However, it is not uncommon for organizations to lay down 'Floors' and 'Ceilings'. 'Floor' means the minimum achievement required for a person to qualify for a payout. For example, if the 'Floor' is kept at 50% of quota achievement, then, if an individual achieves 40%, he will not receive any payout. Similiarly, if the 'Ceiling' is defined as 120% of the achievement, then, if an individual achieves 130% of the quota for the period, he would get only 120% of his variable compensation as the maximum payout and not 130%. In some organizations, they follow the 'Accelerator' principle which means that the payout for more than 100% achievement get multiplied by a certain factor for different ranges of overachievements.
Hope this has been helpful.
Thanks,
Snoopypryer.
From India, Ghaziabad
Variable compensation by definition means compensation at risk and is therefore tied to performance measures - at the individual, team or / and organizational level.
The frequency of the variable compensation payout could be biannual (every six months) or annual though I have also experienced monthly and quarterly payouts in some companies but typically, in such cases (where there were monthly or quarteryl payouts), the performance criteria underlying such payout was either team or the individual performance against pre-established targets or some combination of both the team and individual performance. However, I have also witnessed three level filters being applyied to determine the variable compensation payout in the form of the first filter being the organizational performance i.e. if the organization has not reached a particular milestone, then, regardless of whether some department in the company has over-achieved its targets, there will be no variable payout or the payout may be less than the proportion of overachievement of the department. The second level of filter would be the department's performance. This means that if the organization has achieved its targets but the department has not, then, individuals in that department do not get the performance linked incentive or less than the proportion that they could have expected on the basis of their individual achievements. The last filter is usually the individual's performance.
The number of filters and their relative weightages in determination of indivdiual performance linked incentive payouts as well as the methodology to link the payout to these filters flows directly from the values and compensation philosophy of the organization.
Regarding the quantum of variable compensation for sales personnel, I would suggest that it be fixed at atleast 40% of the fixed annual compensation i.e. if the fixed compensation is Rs. 100, then the variable be at least Rs. 40. It is not uncommon to have 50:50 or 40:60 ratios between fixed and variable. The idea is that the sales person should not be resting on the comfort of a fixed salary but rather, earn most of his income through variable compensation linked to achievement of sales quotas. An enthusiastic sales person should realize the significant upside potential of earning majorly through the variable compensation route since overachievement against quotas should typically result in more than 100% variable payout. Some organizations have a sliding scale mechanism to determine variable compensation payout which means that if the individual achieves 60% of the sales quota for a period (month, quarter or year), he gets 60% of his variable and a 120% achievement will result in a payout of 120% of the variable compensation. However, it is not uncommon for organizations to lay down 'Floors' and 'Ceilings'. 'Floor' means the minimum achievement required for a person to qualify for a payout. For example, if the 'Floor' is kept at 50% of quota achievement, then, if an individual achieves 40%, he will not receive any payout. Similiarly, if the 'Ceiling' is defined as 120% of the achievement, then, if an individual achieves 130% of the quota for the period, he would get only 120% of his variable compensation as the maximum payout and not 130%. In some organizations, they follow the 'Accelerator' principle which means that the payout for more than 100% achievement get multiplied by a certain factor for different ranges of overachievements.
Hope this has been helpful.
Thanks,
Snoopypryer.
From India, Ghaziabad
Hi,
Snoopy's description of variable pay couldnt have been better. He / She has done a great job giving the entire thing in the most concise form.
I did a survey in 2007 on variable pay. The trends in variable pay among various sectors were as follows:-
------------------------------IT ITES FIN FMCG MFRG
Sales
Managers Top Level 35-50% 20-35% 30% 12-25% 30%
Managers Middle Level 20-30% 10-20% 15-30 15-20% 12-25%
Managers Junior Level 10-20% 10% 30 10-20% 7-20%
Non Sales
Top Level Managers 20-45% 15-35% 25% 15-35% 30%
Middle Level Managers 10-35% 10-20% 15-20 15-30% 12-15%
Junior Level Managers 0-25% 5-15% 20% 10-20% 7-10%
There were many other findings. If you want it you may write to me @
Regards
From India, Hyderabad
Snoopy's description of variable pay couldnt have been better. He / She has done a great job giving the entire thing in the most concise form.
I did a survey in 2007 on variable pay. The trends in variable pay among various sectors were as follows:-
------------------------------IT ITES FIN FMCG MFRG
Sales
Managers Top Level 35-50% 20-35% 30% 12-25% 30%
Managers Middle Level 20-30% 10-20% 15-30 15-20% 12-25%
Managers Junior Level 10-20% 10% 30 10-20% 7-20%
Non Sales
Top Level Managers 20-45% 15-35% 25% 15-35% 30%
Middle Level Managers 10-35% 10-20% 15-20 15-30% 12-15%
Junior Level Managers 0-25% 5-15% 20% 10-20% 7-10%
There were many other findings. If you want it you may write to me @
Regards
From India, Hyderabad
Hi snoopypryer, Thanks for the valuable info.Its very helpful. Pls keep sharing such valuable info. _________________________________________________________________
From India, Hyderabad
From India, Hyderabad
There are so many definition available for variable pay , also percentage of variable pay compare to CTC is also differ from organization to organization & as per requirement of that particular job profile ( for example :- sales profile always have bigger variable pay comapare to their fix component ) but in my opinion calculation of actual variable pay is very important and crucial for any HR professional .
While calculating variable pay many point needs to keep in our mind because after all it is part of compensation and any mistake or irrational distribution of variable pay may lead to unrest among your employees.
As per my opinion following points need to keep in mind while designing variable pay
1) Performance of Employee
2) Performance of Team
3) Performance of Organization
4) Grade/level of Employee
5) CTC of Employee
&
6) Total Kitty of variable pay distribution
Last point is very important because all other point can be include in variable pay calculation but last part of factoring total kitty amount is difficult, we can do that by taking weighted average of our calculation.
From India, Mumbai
While calculating variable pay many point needs to keep in our mind because after all it is part of compensation and any mistake or irrational distribution of variable pay may lead to unrest among your employees.
As per my opinion following points need to keep in mind while designing variable pay
1) Performance of Employee
2) Performance of Team
3) Performance of Organization
4) Grade/level of Employee
5) CTC of Employee
&
6) Total Kitty of variable pay distribution
Last point is very important because all other point can be include in variable pay calculation but last part of factoring total kitty amount is difficult, we can do that by taking weighted average of our calculation.
From India, Mumbai
It is the company who decides the variable pay ib our organization we have 80-20 for the non marketing staff including HR, Admin, Legal, Payroll, etc.
For marketing its 70-30 so need to rethink while deciding the base salary is a deciding factor at tims aswell and linked to performance.
From India, Pune
For marketing its 70-30 so need to rethink while deciding the base salary is a deciding factor at tims aswell and linked to performance.
From India, Pune
Hi Snoopypryer,
excellent description. Not only for the corporate people it was informative even for academicians like me who is handling compensation for MBA-HR students. keep sharing valuable information like this. Thanks a lot once again.
Regards
K. Anandhi.
Sr. Lecturer, MBA-HR.
From India, Madras
excellent description. Not only for the corporate people it was informative even for academicians like me who is handling compensation for MBA-HR students. keep sharing valuable information like this. Thanks a lot once again.
Regards
K. Anandhi.
Sr. Lecturer, MBA-HR.
From India, Madras
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