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What Is Variable Remuneration?

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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 16 November 2016
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Remuneration represents the payment or compensation given to an individual for general employment or services rendered. Variable remuneration is a payment method that changes with any given activity. All companies use some form of variable pay in order to reward employees for a job or completed activity. In some cases, companies may provide variable remuneration in addition to fixed salaries, including bonuses. This remuneration type can have a broad definition when taken as part of the company’s total compensation package for different employee types.

An hourly wage is the most common type of variable remuneration given to employees. For each hour worked, a company gives the employee a standard wage. The amount paid hourly to each employee varies based on an employee’s knowledge, skills, and abilities. The market rate for certain employment types can also affect hourly pay. Overtime can also be part of the variable remuneration, as employees who work over a certain amount of hours each week will receive higher hourly wages.

Management positions commonly have fixed salaries for the jobs offered by the company. As an added incentive, salaried positions — both management and otherwise — may receive a portion of variable remuneration. For example, a sales position may offer a small salary to each worker in this department. The remuneration package will include an additional payment for each item sold by the individual. The variable pay package allows a worker to increase his or her pay depending on the work and effort put into a job.

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Bonuses or one-time compensation rewards can also be part of a variable remuneration package. The bonus or compensation reward may depend on performance for a given time period. Individuals can earn a range of extra compensation depending on their actions and abilities to meet goals. Failure to meet the goal simply means lower remuneration, hence the variable nature of this pay plan. In many cases, the bonus or compensation reward pays out quarterly or annually for the employee.

The purpose of offering variable remuneration is twofold. First, companies can lower their initial costs for hiring employees. Lower fixed salaries result in lower overall costs each month for the business. Second, employees often work harder to achieve pay goals, which benefits both the company and the employee. The most essential part of this remuneration package is to create competitive pay; failure to do so can create a scenario where individuals are not willing to work hard for low potential salary increases.

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