HR Jetpack Logo

Variable Pay Explained

This is premium content

Register for HR Recertification Credit Subscription to gain access to this course.

Compensation 101

  • Format: Self-paced
  • Course Duration: 1 hr 8 mins
  • SHRM Professional Development Credits: 1.0
  • HRCI General Recertification Credits: 1.25
  • Certificate of Completion (after passing quiz)

Compensation plays a significant role in an organization's success. A compensation strategy must be designed well to attract and retain talent. As the single largest expense for most companies, it's imperative to develop the right pay structure and appropriate recognition methods. This course is for HR Generalists who need to learn basic compensation principles and their application to the business. During this course, you'll learn about developing a compensation strategy, methods for conducting a job analysis, developing job descriptions, and setting up base and variable pay structures. Compensation is one of those topics you must understand to not only drive the success of your business but also build essential skills for a successful career in HR.

HR Jetpack is recognized by SHRM to offer Professional Development Credits (PDCs) for SHRM-CP or SHRM-SCP. This program is valid for 1.0 PDCs for the SHRM-CP or SHRM-SCP. For more information about certification or recertification, please visit

This activity, has been approved for 1.25 HR (General) recertification credit hours toward aPHR™, PHR®, PHRca®, SPHR®, GPHR®, PHRi™ and SPHRi™ recertification through HR Certification Institute® (HRCI®). For more information about certification or recertification, please visit the HR Certification Institute website at
The use of the HRCI seal confirms that this activity has met HR Certification Institute's® (HRCI®) criteria for recertification credit pre-approval.

Title: Variable Pay Explained
Module: Variable Pay
Duration: 2:20

The primary purpose of variable pay is to recognize and reward employees for their contributions to an organization's performance results. Variable pay is not guaranteed and, therefore, is pay at risk because pay is contingent on performance. Variable pay is often used to distinguish high performers from low performers.

There are many reasons why organizations like variable pay programs. First, variable pay reinforces a high performing culture and employee engagement; it encourages, reinforces, and rewards employees who go above and beyond. In addition, if designed well, variable pay programs drive desired behaviors and the achievement of specific business results. Variable pay also provides an organization more control over compensation expenses because it is not a fixed cost and only paid when recognizing and rewarding performance. Finally, variable pay increases the market competitiveness of an employee’s total pay without adding to fixed costs. That said, it’s important to note that variable pay is not a substitute for base pay increases, especially if base pay is below market.

So, pros of variable pay are that it encourages and reinforces desired behaviors and business results.
It provides a way to distinguish high performers from average and low performers.
It boosts market competitiveness especially with respect to attracting and retaining high performers.
It provides more cost control because it is not a fixed cost.

However, there are also cons to variable pay.
Variable pay adds additional compensation administration
Depending on the type of program, budgeting may be more complex
Great care must be taken in designing plans to produce desired results, and so many organizations seek help from outside consultants
Depending on the type of plan, there may be stringent legal compliance requirements, for example, equity based plans

Instructor: Pamela Sande

Pamela Sande, CCP, is the Managing Principal of Pamela Sande & Associates, LLC. Pamela has over 25 years of human resources experience in both consulting and corporate roles, including as an HR executive and as a specialist in designing total rewards programs that drive organizational performance.

In her current role as Managing Principal, Pamela and...

Pamela's Full Bio

SHRM Recertification

HR Jetpack® is an official SHRM Education Partner recognized by SHRM to offer Professional Development Credits (PDCs) for SHRM-CP or SHRM-SCP.

HRCI Recertification

HR Jetpack® is recognized by HRCI as an approved provider to offer credit hours towards aPHR™, PHR®, PHRca®, SPHR®, GPHR®, PHRi™ and SPHRi™ recertification.

HR Training

HR Jetpack® provides online training and support to HR Professionals.

Contact us to find the most appropriate service for you. Our expert support will answer your questions and offer guidance.

The information provided on this site, and in all courses should be used as a guide. Always consult an attorney when making employment law decisions.

Be Informed

Sign up for important notifications like new courses, deals, etc.