Why do you suppose so many employees come to expect and depe

Why do you suppose so many employees come to expect and depend on incentive compensation - especially when it\'s defined as \"Variable?\" Thoughts/experiences? What can management do to level-set this false perception?

Let\'s probe further on this subject by assuming you\'re the VP of Compensation and have been asked to develop a new incentive compensation plan for sales professionals that will drive higher unit sales performance. What would you propose and why?

Solution

Q1)Incentive compensation or variable pay is the compensation which varies depending on the performance of the employee to a maximum extent and performance of the firm to a little extent. Employees depend on incentive compensation and include it as a part of salary expectation psychologically and as most companies offer near 100% or more variable pay.

Management can level-set this false perception by clearly identifying variable pay with their performance while increasing fixed pay. They should offer differential vatiable pay to ensure employees understand the reason for the difference.

Q2) For sales professionals, increasing sales of the products is the most important performance parameter to offer incentive compensation. The plan should be a mix of fixed and variable compensation where fixed is a minimum and variable offers maximum depending on how well the sales professionals perform.