Variable pay is any (typically) cash compensation paid in addition to an employee’s base salary. Variable pay is based on the performance of the individual, team, department, division, and/or company.

Variable pay compensation is often linked to incentivizing employee performance, and giving the employee a way to share in the reward for being productive. While not applicable for every situation, a great many organizations have instituted different types of variable pay systems with different levels of success. Many organizations take a look at many employee compensation methods for the purpose of enhancing productivity in the workforce, and variable pay for executives and managers as well as regular employees are generally considered. It is not uncommon to find some form of results oriented variable pay systems.