Confirming theoretical pay constructs of a variable pay scheme

Abstract

Orientation: Return on the investment in variable pay programmes remains controversial because their cost versus contribution cannot be empirically justified. Research purpose: This study validates the findings of the model developed by De Swardt on the factors related to successful variable pay programmes.Motivation for the study: Many organisations blindly implement variable pay programmes without any means to assess the impact these programmes have on the company’s performance. This study was necessary to validate the findings of an existing instrument that validates the contribution of variable pay schemes.Research design, approach and method: The study was conducted using quantitative research. A total of 300 completed questionnaires from a non-purposive sample of 3000 participants in schemes across all South African industries were returned and analysed.Main findings: Using exploratory and confirmatory factor analysis, it was found that the validation instrument developed by De Swardt is still largely valid in evaluating variable pay schemes. The differences between the study and the model were reported.Practical/managerial implications: The study confirmed the robustness of an existing model that enables practitioners to empirically validate the use of variable pay plans. This model assists in the design and implementation of variable pay programmes that meet critical success factors.Contribution/value-add: The study contributed to the development of a measurement instrument that will assess whether a variable pay plan contributes to an organisation’s success.