Incentive & Variable Pay Trends in 2023 and Beyond

Incentive & Variable Pay Trends in 2023 and Beyond
Talk to any Gen Z or a Millennial and they prefer a compensation package that fits their ever-evolving needs; and as we know, everyone’s needs and preferences are different.

“Our wellness benefit amount is doubled”, said my niece with a glint in her eyes. Talk to any Gen Z or a Millennial and they prefer a compensation package that fits their ever-evolving needs; and as we know, everyone’s needs and preferences are different.  

Therefore, for an organization to attract the best talent, they need to understand the priorities and design a compensation package that has ‘something’ for everyone, if not ‘everything’ for everyone. 

Two decades back good pay package in a company meant a good salary, steady annual increments, fixed timings, and decent retirement benefits. However, in the present-day context, Compensation and Benefits Plan in an organization is no more about only monetary compensation. 

It includes everything, right from environment, experience, and encouragement to engagement that influences a candidate to accept an offer as well as motivates an existing employee to stay engaged.   

In the past two years after Covid, there has been a transformation in the compensation design. Organizations started giving more importance to Care (employee, child and elderly/parental), Wellness (physical, mental, financial, emotional), Flexibility (time, work, workplace), differential benefits (geography, level, category), etc., while designing compensation packages. 

Adapting to these changing trends, as per industry standards, has helped organizations to stay relevant, remain competitive and be responsive to business needs. 

Most of the time, compensation is the reason people look for a change. Other than fixed components, variable components like incentives, benefits, bonuses, allowances, rewards, etc., are crucial factors for candidates to accept or reject the offer. 

These are non-guaranteed and inconsistent payments but can be increased or decreased, based on need and various other factors. The scope and possibility for more make them an exciting part of the overall compensation package.  

These variable incentives have undergone a lot of changes over a period and some trends that will further affect the total compensation package are: 

Compensation Philosophy

The VUCA world has only intensified in its magnitude and is unlikely to become steady, predictable, or easy to operate.   Given the scenario, companies should decide what they would like to focus on –the percentile that would prefer to be compared to the market; preferred combination of fixed vs. variable; the roles which will have lucrative special incentives, etc.  Striking the right balance will help attract talent and enhance productivity.

Technology and Automation

Irrespective of the size of the organization, AI, ML, Robotics, and Gamification are redefining the ways of working.  Companies also need employees who are experts in these. Special Incentives and increments are required to differentiate employees based on high-tech skills and technical certifications. Apart, companies can have learning allowances or structured training plans to enhance niche capabilities.  

Flexi-time / Hybrid Work Culture

Two years back, WFH trend provided a magical solution to the talent gap some companies faced, as they could recruit from any location. To leverage the best of talent, companies should go for differential compensation plans for WFO or WFH, by including or not including certain benefits. That way, candidates can make a choice based on their preferences. 

Gross Salary Vs Net Salary

Organizations negotiate based on total cost to company, whereas candidates are more concerned about net salary. There are valid reasons for including retirement benefits or variable components paid at the end of the performance period. However, going forward, due to inflation and other reasons, candidates would prefer more in-hand salary than impressive allowances. 

Government and companies should provide for possibilities in this direction where there is more money in the hands of people at the end of the month, especially when the new tax regime is going to be the default one providing more flexibility for investments.  

Wellness, Insurance and Time-off

Some of the benefits associated with these are hot topics in the employment landscape. Standardizing these benefits for all in the organization or keeping them as per level, grade or experience also is not the right approach. These should be flexible enough so that employee can opt for them based on need rather than eligibility.  

Regular Vs Gig Workforce

Freedom of choice, work-life-balance, flexibility, utilization of niche skills are some of the main reasons gig economy is trending.   Organizations should strike a balance and provide for both security and flexibility in their compensation plan that caters to both kind of workforce. 

The regular job usually comes with PF, ESI, Gratuity, Bonus, insurance, etc. Similarly, gig workers too need special incentives and allowances that provide some kind of motivation and stability.  

Incentives to Suit the Changing Needs

During Covid whole lot of allowances and incentives were introduced which were never heard off before (internet, furniture, food, counselling, fitness…). Going forward flexibility, transparency, differential payment and unique allowances/benefits will be on top of everyone’s mind. 

Attractive variable incentives that balance employee expectations and company needs, irrespective of industry type, job family or level, will have to take prominence over base salary.  

The way forward…

The ways of working, quality of work and the talent that makes a difference in the organization is changing at a faster pace.  In such a scenario, companies should be willing to step out of the traditional structures and offer disruptive packages to enhance productivity and help in value creation for employees, employers and stakeholders.  


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