Plus, more companies are extending these programs to lower levels. The primary reasons that organizations use for implementing these programs are to increase the focus on performance, enhance teamwork within the organization, and to retain a competitive compensation package without increasing salary costs. When they work well, variable pay programs strengthen commitment to business goals and increase efforts to improve the operations of the organization. Variable pay programs, however, are not without issues.
Concerns keep emerging in three areas.
First, variable pay programs require clear measures and specific goals. This means that executives must do the hard tasks of planning, setting goals, communicating them and measuring progress. When companies fail to do this, the program is not associated with the goals or needs of the business. Third, if payouts are made without clear goals, then people come to expect the additional income and do not see its association with performance. In other words, the program rapidly becomes an entitlement.