Definition
Variable Pay
Variable pay is the part of your compensation linked to performance — individual, team or company — that is not guaranteed and can range from zero to the full target amount.
Variable pay (also called performance pay or bonus) is a component of CTC that depends on meeting targets. Unlike fixed salary, it is not assured — payout can be below or above target based on your rating and the organisation's performance.
It is shown in CTC at its target value, which can inflate the headline figure even though actual receipts may be lower. It is fully taxable as salary when paid.
When comparing offers, separate fixed pay from variable pay, because only the fixed portion is reliable. A high variable component means more of your income is at risk.
Related terms
- CTC vs Gross vs In-Hand SalaryCTC is the total cost a company bears for you, gross salary is your pay before deductions, and in-hand (net) salary is what actually reaches your bank after taxes and contributions.
- Sign-on BonusA sign-on (joining) bonus is a one-time payment offered to attract a new employee, often with a clawback clause requiring repayment if you leave within a minimum period.
- Retention BonusA retention bonus is an incentive paid to keep an employee from leaving, typically conditional on staying for a defined period, and is fully taxable as salary.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.