Private Companies Rely on Short-Term Incentives to Reward Employees, WorldatWork Finds
Scottsdale, Ariz. - Private companies rely more heavily on short-term incentives, such as bonuses, than long-term incentives to reward and motivate employees, according to a new study by WorldatWork and Vivient Consulting. Where long-term incentives are used, they are reserved for the upper levels of the organization. Both short-term and long-term incentives are a form of ‘variable pay’, also known as pay for performance.
Private companies use short-term incentives (STIs) extensively, with nearly 80 percent reporting an STI plan. In contrast, only about one-third of respondents report having a long-term incentive (LTI) plan in place, primarily due to the cost and complexity of implementing such a plan. By far, the most popular type of STI plan is a bonus plan. Nine out of 10 private companies in the survey with an STI plan have a bonus plan. See graph.
“Variable pay is playing an increasingly prominent role for all organizations striving to link employee rewards with bottom line results,” said Jim Stoeckmann, compensation practice leader for WorldatWork. “We can expect to see pay practices focus more heavily on linking pay to performance in the near future.”
Private companies face unique challenges when designing both short- and long-term incentive programs. Challenges include a lack of liquidity for equity, costly or difficult equity valuation, complexities arising from the ownership structure and competitive data that are geared to public companies.
The WorldatWork and Vivient Consulting study on private company pay practices found that companies’ approximate budgets for STIs range from two percent to 12 percent of operating income, with six percent being the median. The budgets were fairly consistent across companies of different revenue sizes.
Source: WorldatWork and Vivient Consulting research report titled “Private Company Pay Practices” (October 2007)
The survey of 300 private companies represented business and professional services; manufacturing; financial services and insurance; retail, wholesale and distribution; health services and high technology. The size of responding organizations ranged from $100 million to more than $5 billion in revenue. The corporate status of responding organizations was primarily C Corp. (37 percent), LLC (26 percent) and S Corp. (20 percent), with a small number of subsidiaries (4 percent) and partnerships (3 percent) also participating.
Media may request a complimentary copy of the research report by contacting mrhodes@worldatwork.org.
###
About WorldatWork®:
The Total Rewards Association
WorldatWork (www.worldatwork.org) is a global human resources association focused on compensation, benefits, work-life and integrated total rewards to attract, motivate and retain a talented workforce. Founded in 1955, WorldatWork provides a network of more than 30,000 members in 100 countries with training, certification, research, conferences and community. It has offices in Scottsdale, Arizona and Washington, D.C.
The WorldatWork group of registered marks includes: WorldatWork®, WorldatWork Society of Certified Professionals®, Alliance for Work-Life Progress® or AWLP®, Certified Compensation Professional® or CCP®, Certified Benefits Professional® or CBP, Global Remuneration Professional or GRP®, Work-Life Certified Professional™ or WLCP®, Certified Sales Compensation Professional™ or CSCP™, Certified Executive Compensation Professional or CECP™, workspan®, and WorldatWork ®Journal, and Compensation Conundrum®.
Print this Page