Understanding the Importance of Variable Compensation
While companies often focus on salaries to retain talent, variable compensation with non-economic benefits is highly valued by employees, according to experts.
“We now face different pressures that employees experience, where cash salary is no longer the only important factor; flexibility and the emotional aspect are critical to ensure that people are well,” advises Luis Mercado, President of the Executive Board of the Human Talent Management Association (ERIAC).
Variable Compensation: More Than Just Money
The range of compensation options is broader than just economic incentives. Benefits can include superior health services beyond legal requirements, as well as work-life balance.
“Leaders must cultivate social awareness to understand the needs of our employees and become more human and empathetic. This will help us foster loyalty to a project of life, ultimately improving our companies,” considers Norma Godínez, HR Director at Kelly México.
This awareness doesn’t emerge spontaneously. Human Resources experts recommend studying the workforce population, understanding their demographics, career stages, personal aspirations, and needs.
By 2025, Human Resources departments acknowledge that physical, mental, and emotional well-being of employees have become prominent topics. In 2026, these matters will be further addressed.
“Companies are very concerned about developing strategies and programs that foster well-being in people,” comments Alejandro Navarro Borja, General Director of the Occidental Human Resources Association (ARIOAC).
In this context, offering health-related benefits is one way to compensate employees. For instance, including psychologists in the company, broader medical expense policies, and promoting self-care are some examples.
Flexibility: Another Form of Compensation
Work-life balance is another form of compensation, ranging from working remotely, hybrid schemes, and reduced weekly hours. These types of compensation packages now account for 37% of the benefits offered by companies, according to Michael Page’s 2026 Salary Guide.
Flexibility also recognizes that not all employees desire or need the same benefits. A single employee’s requirements differ from those with family responsibilities needing maternity or paternity leave.
Only 9% of employees consider their compensation package “very attractive,” while 34% find it “attractive” and 29% view it as “average,” according to PageGroup data.
“The real challenge is not containing dissatisfaction but elevating the majority to higher levels of commitment through compensation and development policies that reinforce equity,” PageGroup concludes.
Key Questions and Answers
- What is variable compensation? Variable compensation refers to non-salary benefits that companies offer to recognize employee efforts and foster loyalty. Examples include annual incentives, team bonuses, recognition programs, discretionary bonuses, and profit-sharing plans.
- Why is variable compensation important? Variable compensation addresses employees’ needs beyond salary, focusing on aspects like work-life balance and emotional well-being. This approach helps companies retain talent by acknowledging that employees value more than just cash.
- What types of non-economic benefits can companies offer? Companies can provide superior health services, flexible work arrangements (remote work, hybrid models, reduced hours), and well-being programs to attract and retain employees.
- How can companies ensure their compensation strategies are effective? Companies should understand their employees’ needs by studying the workforce population, creating transparent performance measurement tools, and offering tailored benefits packages.
- What percentage of companies prioritize work-life balance in their compensation packages? According to Michael Page’s 2026 Salary Guide, 37% of companies prioritize work-life balance through flexible compensation packages.
