Variable Compensation

Variable compensation is pay given to an employee based on the results they produce. It is usually offered on top of a fixed “base salary” and comes in various forms:

• Commission: This is a portion of revenue given to the sales employee as part of an official compensation plan.
• Profit-Sharing Plan: This plan gives employees a portion of the company’s quarterly or annual profit in addition to their base salary.
• Bonus: This is an extra lump sum given to employees based on the company’s performance. It’s often an unspecified amount on an annual basis and will vary depending on the year’s results.
• Stock Option: This option gives employees the right to purchase shares in the company under certain circumstances. They are sometimes offered as an alternative to cash compensation.

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