More firms look to tweak variable pay amid turmoil

Caught between talent wars and cost pressures, Indian companies are reworking variable pay to draw sharper distinctions between high performers, steady contributors, and underachievers—and tie salaries to business performance more closely.

- Abhishek Law & Devina Sengupta

Even firms that previously lacked this component—particularly those from the manufacturing sector—are now introducing company performance-linked payouts in the cost-to-company (CTC) structure to reward and retain top talent.

“Organizations now prefer a ‘we earn; you earn’ mentality. When the volatility of business outcomes is high, the volatility of compensation is also high. This helps firms avoid an overload of fixed compensation costs in their profit and loss,” said Pawan Dinkar, a director at professional services provider Deloitte India, who focuses on executive performance and rewards.

“We are seeing traditional sectors (such as manufacturing), which have majorly relied on a fixed component, introduce variable pay to manage employee costs better and ensure a stronger linkage to performance," said Roopank Chaudhary, partner and head of data solutions for consulting firm Aon India.

"This ensures a lesser burden on the company when business is not performing, and incentivizes employees to perform better (to get higher payouts),” he added.

For instance, Dalmia Bharat Ltd, India’s fourth-largest cement maker, moved away from a completely fixed-pay model and inducted variable pay at seniorand mid-management levels at the beginning of 2025-26.