Are incentive and bonus payments generally considered variable compensation?

Incentive and bonus payments are typically classified as variable compensation because they are contingent on performance metrics or targets that can fluctuate based on individual or company results. Unlike fixed compensation, like a base salary, variable compensation can vary from period to period based on predetermined benchmarks, such as sales targets, profit margins, or various other performance indicators.

This structure serves to motivate employees to achieve higher performance levels, thereby aligning their interests more closely with the goals of the organization. The relationship between performance and compensation in this context emphasizes the nature of incentive and bonus payments as variable rather than fixed. The answer acknowledges this key characteristic of organizational compensation systems, which is crucial in understanding how compensation strategies work to incentivize performance.