MERIT PAY and VARIABLE PAY

SIMILARITIES AND DIFFERENCES

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 WHAT IS MERIT PAY?
• Merit Pay or merit-based pay is defined as a payment or a
reward that is given to the highest performing worker.
• Merit pay is designed to reward and recognize the
employees who perform best in their roles for exceeding
expectations.
• Merit pay is dependent on the performance of the
employee.
• The better the employee performs, the more pay he will get.
The name itself is the definition of merit pay.
• Whenever an organization wants a job to be done quickly,
merit pay is the best way to go.
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 • Variable pay, also known as performance pay, is used to
recognize and reward employee contributions over and
above normal job requirements for a company's productivity,
profitability, quality, etc.

• The purpose of variable pay is to encourage employees to do

more work or perform better than routine work.

• In this, how and how much has the employee contributed to

increasing the company's productivity, profitability, or
quality?
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 What is variable pay?
• The variable pay depends on you and your company's
performance. Therefore, most such schemes have the target and
the actual payout.

• It is one of the five essential components of the company's

rewards for its employees. It is a specific percentage of fixed pay.

• Other reward components include fixed pay (salary and

additional cash allowances), retirement (pension-related pay
benefits and perks (vacation, medical, car, insurance etc.)

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 Significance of variable pay
• Variable pay is employee compensation that changes.

• Variable pay is any number of bonuses, incentives, commissions

and other cash rewards depending on the performance of the
employees.

• On the other hand, basic pay is fixed and paid even if the
employees have met their objectives. Variable pay and basic pay
together are known as a pay mix.

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 Significance of variable pay
• Employers often use variable pay to motivate their employees
and reward them for their best job performance.

• This is an additional payment that may accompany the salary and

may come in the form of an alternative compensation instead of
cash.

• People vary depending on their level of employment, job

performance, stage of life, financial goals and reward
calculations against personal risk, and how much they are
capable of for variable pay.
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