Variable Pay Definition

Variable pay typically represents a payment made by an employer to an employee based on performance results. Employees usually receive this type of compensation in addition to their base pay.

Variable Pay Extended Definition
Employers typically pay employees variable pay for success related to personal, team, or company performance. Successful organizations establish a clear business plan and key performance indicators that reflect the metrics that matter most to the company.

Variable compensation can be communicated in advance as an incentive or presented as a reinforcement or bonus after the fact. Most employers compensate employees with variable pay in the form of cash, stock, or paid time off from work.

Like other types of compensation, variable pay is subject to payroll taxes (e.g., federal income, Social Security, and Medicare taxes).

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Last Updated By

Rachel Blakely-Gray | May 01, 2023