If money is often considered a sensitive topic in many cultures, this discomfort should not exist between managers and employees when it comes to variable compensation. However, to avoid misunderstandings, confusion, and frustration, it is essential to adopt certain principles and tools to ensure clear and effective communication. Addressing the topic of variable compensation with your team smoothly is possible, and we’ll explain how!
Clear and defined objectives: a prerequisite for implementing variable compensation
Implementing variable compensation is not just a managerial act; it is an agreement between the company and the employee. The activation of a bonus upon reaching a predefined performance level should be explicitly documented to prevent any misunderstandings between the employee and the manager. For this reason, it is more appropriate to speak of "variable compensation management" rather than traditional leadership.
However, when variable compensation is integrated into a Management by Objectives (MBO) system, built around three or four key priorities defined by the manager, it becomes a true managerial act. The key lies in setting clear, precise, and unambiguous objectives that are realistic, achievable, and motivating for employees.
Managers must be able to explain why certain objectives have been chosen over others, how they benefit the company, and how they align with the employee’s skills. Supporting employees in achieving these objectives not only helps them earn their associated bonuses but also contributes to their professional growth and career development within the company. To accomplish this, managers need the right tools.
Tools available to managers for discussing variable compensation with their team
Dialogue and education alone are not sufficient to clarify objectives, eliminate uncertainties, and strengthen team motivation. Variable compensation becomes more engaging when the right tools are provided to employees, helping them understand expectations, recognize their incentives, and adjust their behaviors accordingly.
The right software solutions enable a dynamic and transparent management of variable compensation, guiding employees from the initial presentation of objectives to the completion of their performance cycle. These digital tools should provide employees with clear indicators of their progress, potential earnings, and strategies to improve performance and surpass their goals. The ability to simulate future bonuses based on different performance levels is a valuable asset, as it helps employees better understand and appreciate the relevance of their variable compensation and assigned objectives.
Variable compensation should not be a taboo topic
The biggest mistake a manager can make is treating variable compensation as a taboo subject. Open communication between managers and their teams is crucial, from the initial discussion of objectives to the actual payment of bonuses. Everything should be transparent: the selection of objectives, the rationale behind them, the employee’s current performance, the expected performance levels, the tools and resources available to help achieve these goals, the timeline of the performance cycle, and how employees can express difficulties or concerns during the process.
Clear and compelling objectives that leave no room for doubt, user-friendly tools that answer all questions, and open, confident communication—these are the keys to effective management that allows discussions on variable compensation to be both transparent and productive.
