Saturday, September 13, 2014

What is Variable Pay and Why Does It Need Integration with Core HR Systems

According to SHRM, Variable pay is a significant element of the direct compensation package of a growing number of organizations. The trend is towards more organizations using variable pay
and for these organizations to expand eligibility and to increase the prominence of variable pay in the total direct compensation package.

SHRM defines variable pay  as “direct compensation that does not become a permanent part
of base pay/salary and which may vary in amount from period to period.” Other names for variable pay include: incentive compensation, incentives, bonuses, commissions, cash awards and lump sums.

Variable pay can be in the form of short-term (one year or less) or long-term (two years
or more) incentives/bonuses and employee ownership programs. “Incentives” are plans that have predetermined criteria and standards, as well as understood policies for determining and allocating rewards. “Bonuses” are awards delivered at the end of the period, based on a subjective judgment as to the quality of performance and the rewards that are warranted.

The criteria and standard for variable pay are defined in the Core HR system and the pay is calculated in the compensation system. So, a near real time integration between the Core HR system and compensation system is essential to ensure timely and accurate execution of the variable pay strategy of an organization.

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