Short-term variable pay typically relates to which of the following?

Short-term variable pay typically relates to which of the following?

• A. Performance over multiple years
• B. Annual or quarterly performance outcomes
• C. Salary adjustments based on inflation
• D. Equity grants that vest over time

Answer: (B)

Short-term variable pay specifically refers to compensation that is tied to performance outcomes that are typically measured over a shorter duration, such as annual or quarterly results. This type of pay is often structured as bonuses or incentives that reward employees for achieving specific goals within a brief timeframe, encouraging immediate productivity and performance alignment with the company’s objectives. In contrast, other options involve different compensation strategies or timeframes. Performance measured over multiple years relates to long-term incentive plans, which focus on sustained performance and often incorporate vesting schedules or retrospective assessment of achievements. Salary adjustments based on inflation are linked to maintaining purchasing power, rather than incentivizing performance directly, and they do not have a variable component tied to performance metrics. Equity grants that vest over time are typically aligned with long-term performance and retention strategies, promoting loyalty and long-term value creation for both the employees and the organization. Therefore, linkages of pay to annual or quarterly performance outcomes is a distinctive feature of short-term variable pay, which is why it’s the correct answer.

Short-term variable pay specifically refers to compensation that is tied to performance outcomes that are typically measured over a shorter duration, such as annual or quarterly results. This type of pay is often structured as bonuses or incentives that reward employees for achieving specific goals within a brief timeframe, encouraging immediate productivity and performance alignment with the company’s objectives.

In contrast, other options involve different compensation strategies or timeframes. Performance measured over multiple years relates to long-term incentive plans, which focus on sustained performance and often incorporate vesting schedules or retrospective assessment of achievements. Salary adjustments based on inflation are linked to maintaining purchasing power, rather than incentivizing performance directly, and they do not have a variable component tied to performance metrics. Equity grants that vest over time are typically aligned with long-term performance and retention strategies, promoting loyalty and long-term value creation for both the employees and the organization.

Therefore, linkages of pay to annual or quarterly performance outcomes is a distinctive feature of short-term variable pay, which is why it’s the correct answer.