A company designing a compensation plan needs to make several decisions. Explain a company's pay options in terms of: fixed versus variable pay, performance versus membership, and individual versus job-based system

What will be an ideal response?

Answer: Summary of suggested answer -
• Fixed versus variable - Fixed is base pay, little variation in compensation. Compensation costs are constant. Risk is reduced for employee and employer. Trades income security for income potential. Variable are bonuses, commissions, etc. Costs of compensation are tied to profit. Increases risk, also increases earnings potential. Employee has a direct stake in company's success.
• Performance versus membership - Performance pay is tied to the employee's contribution to the company. Types - piece rate, commissions, etc.
• Membership pay - All employees in the same job receive the same pay. Basically paid for time put in.
• Job versus individual - Job uses the tasks and duties performed as the basis for pay. Works best in stable situations, standardized jobs, etc. Individual is either knowledge- or skill-based pay, the individual contribution is the basis of pay. One increases pay by doing the job better. Works best with educated workforce, dynamic market/organization when there is limited upward mobility.