Fixed Pay v/s Variable Pay

Discuss Fixed Pay and Variable Pay

Read group discussion points for extempore topic “Fixed Pay v/s Variable Pay”.

Page Highlights:

  • Features of Fixed Pay
  • Features of Variable Pay
fixed pay vs variable pay group discussion

Extempore Topic: Fixed Pay v/s Variable Pay

What is Fixed Pay?

Fixed pay is the in-hand salary that an employee gets at the end of the month. This includes basic pay, conveyance allowance, house rent allowance, and other components minus the tax.

What is Variable Pay?

Variable pay is a kind of performance-based incentive that is paid to an employee on a quarterly or annual basis. 

Features of Fixed Pay:-

  • It is a fixed amount that an employee would receive regardless of their performance.
  • The only scenario where an employee does not receive his fixed pay is if they have taken unpaid leaves or has done some sort of damage to the company (broken any appliance or lead to some sort of loss for the company).
  • This amount is guaranteed for the employee and gives them a sense of security that they will be earning this much at least.
  • Fixed pay at times can lead to demotivated employees. Under fixed pay, both good performers and bad performers are paid their base salary.
  • This leads to good performers not wanting to put in extra work as they are not rewarded for it. 
  • In the same way, bad performers are not going to improve their performance because they are not losing anything.
  • The fixed pay system leads to employees looking for higher-paying jobs.
Conclusion

In conclusion, fixed pay while providing security to the employees has its cons. One of the biggest is that hard workers are often not rewarded for their efforts. This leads to a feeling of dissatisfaction on their part. And these employees start looking for other opportunities where they might feel more appreciated. This in turn can prove to be bad for the company as they start losing good employees to their competitors.

Features of Variable Pay:-

  • It is an incentive that employees get depending on their performance.
  • This is variable, with the amount directly based on whether or not the employee met their targets and how much profit they made for the company.
  • In India, sales job has the highest variable pay system. Where the ratio of fixed pay to variable pay is 60:40.
  • For non-sale jobs, the ratio of fixed pay to variable pay is 80:20. 
  • Variable pay leads to a highly motivated employee, as their performance will directly lead to their incentive being higher.
  • However, variable pay then leads to unhealthy competition. This leads to a toxic work environment where everyone is trying to sabotage each other. 
  • Often, to meet their targets an employee can undertake unfair means.
  • For example, in a sales job just to make a sale, the employee can advertise false information to their customers. This can damage the brand reputation of the company and also strain their relationship with the customers.
  • Variable pay affects employee retention. If the company is not making a profit then this would affect the variable pay and employees then start looking for other avenues.

Conclusion

In conclusion, variable pay increases an individual’s motivation and determination to work better. However, it damages the work environment by promoting unhealthy competition among the employees.

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