Variable remuneration – why and how?

Varia­ble remu­ne­ra­tion is sold as a means of impro­ving the perfor­mance of the indi­vi­dual. I don’t believe so.

Those who receive the highest varia­ble remu­ne­ra­tion are those who are paid the most anyway. If you have to moti­vate them through extra payments or increase their perfor­mance, why do they have a respon­si­ble posi­tion in the company at all?

Sales employees like to be remu­ne­ra­ted varia­bly because success – usually just sales – is so easy to measure. We know that we want intrin­si­cally moti­va­ted employees. And perhaps suspect that they can only be moti­va­ted by money. We convey this to ever­yone if we remu­ne­rate them variably.

Now maybe we pay them varia­bly because we can’t control what these exter­nal sales reps do exactly? With this reaso­ning, should we then also pay all home office employees varia­bly? Of course not.

In produc­tion, varia­ble remu­ne­ra­tion has been intro­du­ced as pay-per-piece to ensure a mini­mum perfor­mance. It is accom­pa­nied by exten­sive time recor­ding, control, docu­men­ta­tion, and, despite all the bureau­cracy, has regu­larly led to the “capped maxi­mum rate” being applied. This means that the employees have always achie­ved the maxi­mum of what can be expected.

Howe­ver, it is not enough to note that varia­ble remu­ne­ra­tion crea­tes bureau­cracy. It also leads to disincentives.

Should I do what serves the company the most or what opti­mi­zes my goal achie­ve­ment? We can assume a normal distri­bu­tion of decis­i­ons by affec­ted remu­ne­ra­tors. A larger crowd will prio­ri­tize their own goal achie­ve­ment. Because the effects are most comprehensible.

All in all, varia­ble remu­ne­ra­tion leads to

• Compen­sa­tion bureau­cracy in the form of enlar­ged HR depart­ments, poli­cies, and billing programs

• Incon­sis­tency of perso­nal and corpo­rate goals

We are still waiting for the posi­tive effects.

A simple solu­tion for letting employees parti­ci­pate in the company’s success are propor­tio­nate parti­ci­pa­ti­ons in the company’s results. In this way, extra­or­di­nary succes­ses can be addi­tio­nally rewarded. Without bureau­cracy and without incon­sis­tency of perso­nal and corpo­rate goals! If you are inte­res­ted in jointly estab­li­shing leader­ship prin­ci­ples, please let me know!