At-risk Pay Plans

Definition (1):

At-risk variable pay plans (sometimes called risk-sharing plans) are plans that put some portion to the employee’s weekly, monthly, or yearly pay at risk. If employees meet or exceed their goals, they earn back not only the portion of their pay that was at risk but also an incentive. If they fail to meet their goals they forego some of the pay they would normally have earned. One DuPont division set employee’s at-risk pay at 6%. Employees could then match or exceed their usual full pay if their department reached certain predetermined financial goals.

Definition (2):

Variable pay plans are getting increasingly popular as compensation modes nowadays in the business world. These plans or programs are also called at-risk pay plans or pay-for-performance plans, which provide all or some of the compensation of a workforce depending on employee performance or e team’s performance. Supporters of at-risk pay plans argue that offering tangible rewards for better performance encourages efficiency and hard work and acts as an effective disincentive to mediocre and if not offered, work performance remains uninspired.

Use of the Term in Sentence:

  • At-risk pay plans commonly emphasize on identifying achievements.
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