Want to Boost Employee Morale?
Variable Compensation Could Be the Answer.
Assuming a safe working environment with reasonable job security, employee happiness or morale usually comes from each employee’s personal calculation of salary + benefits + job satisfaction + variable compensation.
And, as it turns out, variable comp can become a surprisingly hefty factor in this equation.
Weighing the Full Value of Variable Compensation at Your Company
Considering making a change? When it comes to fine tuning your employee pay structures, it’s best to think carefully before you make any concrete moves. As your team discusses the possibility of implementing a new variable comp strategy or updating your existing one, it is wise to keep these 3 key points in mind.
- Performance pay has a widespread positive impact
In our last article, we discussed the research surrounding performance pay and employee productivity / motivation. We determined that performance pay certainly increased productivity over the short term, and we can now see that it boosts employee happiness and morale as well.
According to a study in Human Resources Management Journal, researchers determined that performance-related pay was “positively associated with job satisfaction, organizational commitment, and trust in management.” It’s clear that this is one form of variable comp that can definitely pay off.
- Bonuses can increase workplace happiness
With bonuses down 21% YoY in December 2023, a Q4 2023 survey from BambooHR found that employees are currently wallowing in a 4-year low of unhappiness. Good news though: aggregate data from 57,000 employees across 1,600 companies suggested that bonuses were one of the top measures that would increase workplace happiness.
At your company, you may find that you can double your morale-boosting tactics by combining these approaches. Perhaps you can offer performance-based pay for some employees and annual or quarterly bonuses for all employees, dependent on company performance.
- Your variable comp structure must match your culture
For some companies, bonuses and performance-related pay shouldn’t be tied to individual accomplishments. If you worry that incentive-based pay for individual team members could lead to unhealthy competition, gamesmanship, or sandbagging at your company (this is a legitimate concern), you may want to create group incentives instead. After all, you’re trying to improve happiness, right?
Just like individual incentives, you should ensure that your group variable compensation awards align with your top-level company strategic goals. A word of caution, though: working with groups can make it difficult to avoid conflicts of interest. (We discussed conflicts like these in Part 1 of this series.)
How to Improve Employee Morale and Your Bottom Line at the Same Time
Worried that offering variable pay at your business may simply cost too much in the long run? You’ll be relieved to hear that variable comp programs aren’t solely beneficial for employees – they can benefit your company’s bottom line too.
An article in the American Business Review (see appendix in this source) shows that shifting to more variable compensation can help reduce your organization’s breakeven point. This results in your company being able to be profitable faster.
Of course, you will want to make sure you don’t accidentally increase labor hours due to administration and management of your new variable comp programs. To keep those labor hours low and variable pay flexibility high, it’s a smart choice to turn to variable compensation software that is seamlessly integrated with your ERP or accounting system and leverages modern automation tools.
Software solutions like these reduce the effort that it takes to set up new variable pay programs on an individualized or group basis. They also save time when you change your programs to better meet your employees’ evolving interests and needs.
If you use Microsoft Dynamics GP, we recommend Commission Plan because it is so easy to use and flexible that it helps you set up your new variable comp plans for employees in minutes flat, and then change them whenever you like.
Contact EthoTech to Learn More
Since 2002, companies across every sector have relied on EthoTech for the right tool for tracking, calculating, and paying variable compensation. We provide solutions, integration, and support that is focused solely on integrated variable compensation software for Microsoft Dynamics GP. It’s all we do, and we do it better than anyone. Contact EthoTech to learn more.
Read the 1st article in this series:
Crafting Your Variable Pay Program: 5 Tips for Success
Read the 2nd article in this series:
The Surprising Ways Variable Comp Affects Motivation