Variable Pay
Also called: performance pay, performance bonus
What is Variable Pay?
Variable pay is the portion of a compensation package that is paid only when a stated target is met — individual performance, team results, company profit, or a mix. It is included in cost to company at its target value, which is not the same as what will be paid.
Why variable pay matters
It is the easiest way to make a package look larger than it reliably is. A candidate reads cost to company as a number they will receive; an aggressive variable component means the figure is a best case that may never occur twice in a row.
Variable pay formula
Variable pay earned = Target variable pay × Achievement percentage
The package figure is normally built at full achievement, so ask what the last two years actually paid out.
How it works in practice
Keep it honest and it does its job: a genuine share of results, paid when results happen. Inflate it and you buy a joining, then lose the person in the first cycle where the payout disappoints. Stating the fixed and variable halves separately in an offer prevents that entirely, and costs nothing.
Worked example
On a ₹9,00,000 package with ₹90,000 of target variable pay, a 70% payout year pays ₹63,000 — and the package the candidate actually experienced was ₹8,73,000.
Frequently asked questions
Only if it is genuinely expected to pay out. Including an aggressive target inflates the package and damages trust in the first payout cycle.