How does your salary incentive plan stack up? Check out these benchmarks
  • leadership
  • Blog post

How does your salary incentive plan stack up? Check out these benchmarks

Whether your organization is a private company, a government entity or a nonprofit, you probably have a bonus plan in place to reward employees over and above their base compensation. According to a survey by World at Work, a nonprofit HR think tank, 95% of companies and about 80% of government and nonprofit employers do.

But what exactly are you trying to reward? And is your incentive plan constructed so as to move employees in the direction you want?

If those questions interest you, the World at Work survey provides some benchmarking information you may want to consider.

Hard data
One set of benchmarks has to do with the measures private companies use to determine bonuses and other short-term incentive pay plans. (As opposed to long-term incentives like stock options and other equity and deferred compensation plans.) According to the survey, as of 2011 the most common measure determining whether employees got bonuses or not, and how much they got, was operating income, which is basically profit before interest and taxes. Some 57% of companies responding to the survey reported using that as a criterion.

Others included:

    Revenue — 50% of employers
    Individual employee goals — 50%
    Net income/Earnings per share — 24%
    Service/product quality — 22%
    Customer satisfaction — 18%
    Measures of return (example: ROI) — 10%
    Other measures of economic profit (example: EVA) — 9%
    Miscellaneous (examples: cash flow, market share, working capital, safety) — 24%

The percentages don’t add up to 100% because a number of companies have more than one bonus plan in place and/or use more than one criterion.

Main objectives
Another useful set of benchmarks measures the primary objectives of companies’ short-term incentive plans.

In the survey, World at Work asked companies to list their three top objectives in awarding bonus cash. The top goal was simply to reward employees, with 74% of respondents listing it.

Other objectives were more pointed. Here they are:

    Focus employees on specific goals — 67%
    Share the organization’s financial success with employees — 55%
    Be competitive with other employers — 42%
    Retain employees — 34%
    Recruit qualified employees — 6%
    Provide special recognition — 4%

What conclusions can we draw from these figures?

  • First, every organization has different objectives it wants to promote, and different kinds of employee conduct it wants to encourage. You need to be very clear about both.
  • Second, your incentive plan should draw a straight line between employee behavior/performance and the desired objectives. In other words, you should be able to show employees, using data, how what they did fed into the results you want.
  • Third, depending on how many objectives you want to promote, you may want to consider more than one short-term incentive plan.

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