Fixed pay and Variable pay are the terms employees hear a lot, but for new joiners it may be confusing, so let's clear the confusion today.

Fixed Pay

Fixed pay, also known as base salary or base pay, refers to the monthly salary companies give their employees in exchange for their work. It is predefined and is usually expressed as an annual or monthly salary and remains relatively stable over time. Depending on the company policy and/or employment agreement, allowances like medical insurance, childcare, a retirement fund, or transport, housing etc may or may not be included in fixed pay.

Fixed pay is not directly linked to individual or organizational performance. Instead, it is determined by factors such as the employee's position, experience, skills, market conditions, and internal salary structure. Fixed pay provides a sense of stability and security for employees as they know the amount they will receive regularly.

Variable Pay

Variable pay, also known as performance-based pay or incentive pay, is the compensation given to an employee based on their performance. It is usually offered in addition to the employee's fixed pay. It is designed to reward employees for achieving predetermined goals, targets, or performance metrics. Variable pay isn't always in the form of cash i.e a bonus, it can be via commissions, profit-sharing, stock options etc.

The purpose of variable pay is to motivate employees to perform better and align their efforts with the organization's goals. It provides an opportunity for employees to earn additional compensation based on their performance.

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