Employee motivation and productivity are constant topics among managers, who are always looking for strategies to improve their team's performance and retain talent within their organization.
Currently, offering a good salary is no longer enough to attract professionals. Therefore, variable compensation is seen as an important management tool.
This type of reward, offered to collaborators according to their performance, is generally linked to the achievement of goals and the professional performance executed within a certain period by employees, teams, and the company as a whole.
However, the rules defining the distribution of benefits and bonuses are not always transparent, and in some cases, some team members might feel that others are being favored.
To make the task of creating a variable compensation policy easier, let's talk a bit about the importance of this payment and how it can be made. Follow along!
How to calculate variable compensation?
We can highlight two available methods for calculating this remuneration:
Distribution
In this model, the total amount to be distributed is determined by the company's net profit. Employees' individual bonuses are directly related to the organization's performance as a function of profit and based on their own salary.
In this method, those who receive the highest salaries naturally have greater responsibility for the outcome, which is why they receive a larger bonus.
The rule is to set a net profit target within a certain period of time. If the amount is achieved, bonus distribution occurs; if the profit does not reach the stipulated amount, there is no bonus distribution.
Target value
In this type of calculation, the employee needs to reach a performance expected to receive a target bonus, which could be, for example, an additional salary. Furthermore, exceptional performance can result in an excess bonus.
This model can be used for the company's global goals, meaning it applies to all employees, but also for each employee's individual goals.
Steps to create a rewards program
There are 3 basic steps to create a transparent and well-structured variable compensation program:
Definition of indicators
To start a compensation program, it is fundamental to establish what will be evaluated and how the evaluation will be done. Generally, the indicators are tied to goals, which must align with the strategic objectives of the organization, a department, or an employee.
Definition of the rules
This is the time to define the eligibility criteria for participants and also to create the mathematical formula and reward curve to which employees will be subjected.
It's interesting to create payment groups and within them make the considerations between departments and the different hierarchical levels within the organization.
Follow-up
It is essential to have periodic monitoring of the indicators, which should be visible to participants, whether on a bulletin board or intranet, so that everyone can see how the goals are being met.
Tools for variable compensation
Variable compensation obviously depends on an analysis of performance indicators, whether for salespeople, production team members, or executives. It's worth remembering that the reward program must operate based on pre-established rules to ensure its reliability.
Relying on tools that facilitate this process is extremely important. The Individual Performance Software Stratec enables control and analysis of profit-sharing programs for all levels of company management.
With the system, all involved participants can track their bonus status and what's preventing it from being higher. Employees can view the action plan for indicators that haven't met their target, which creates positive pressure for their achievement.
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