Abstract
The main two reasons for the companies to implement variable pay plan are: motivating employees and reducing cost. In this paper we try to point out the challenges the organizations might face when they apply variable pay system by reviewing related literature. We find that it is difficult for the company to have a reliable measure for the variable pay system. In addition, the focus of the variable pay plan should be on motivating employees or cutting cost and how to strike a balance between these two is also an essential issue. Finally we conclude that we always have to assess the circumstances of the organization before applying the plan.
Variable Pay Plan 3
Variable Pay Plan: One Way to Motivate Employees and Cut Cost.
The companies which try to implement the variable pay system are increasing. More and more American employees who in the past are used to receive fixed pay with annual raises now work under pay systems with uncertain elements. (William M. Mercer Inc., 1999). Kristine and Mark's study (2002) showed that even though the predicted values of the variable pay plan were lower than the offered fixed pay, generally most of the employees would choose the variable pay as long as it was linked to individual performance. Like Paul (2007) said in his article, the employees who perform better want to know their productivity will be appropriately rewarded and the variable pay system can satisfy their needs. On the other hand, to implement the variable pay plan has some obstacles as well. The most mentioned problem in published literature I have reviewed is the lack of a sound performance measure of variable pay plan. Besides, the cost of the variable pay system is also a critical issue. Thomas (2003) proposed that the variable pay plan can ...