More Private Companies Offer Both Short-, Long-Term Incentives

Feb. 14, 2012 — A majority of private U.S. companies now offer long-tem incentives (61%) in addition to short-term incentives (95%), according to a study on pay practices at private companies by WorldatWork and Vivient Consulting.

The "Private Company Incentive Pay Practices Survey" found that having a long-term incentive (LTI) plan is now a prevalent practice across all private for-profit corporations (except partnerships). In spite of the challenges in terms of valuation and liquidity, LTI use has increased from 35% in 2007 to 61% in 2011.

"Private companies face unique incentive compensation challenges," said WorldatWork practice leader Kerry Chou, CCP, CBP, GRP. "The jump from 35% to 61% in four years was significant and reflects the need for private companies to compete for senior/executive-level talent with both private as well as publicly traded companies."

Respondents report increased use of short-term incentive (STI) programs since 2007 as well, growing from 79% to 95%.

"On the short-term incentive side, we saw an increase in the use of individual incentives and team/unit/small group incentives," said Bonnie Schindler, partner and co-founder at Vivient Consulting. "Spending on incentives as a percentage of operating income stayed constant overall from 2007 to 2011. This indicates that private companies are focusing their incentive dollars on specific key players with specific objectives in mind. Private companies are being smart and strategic about their compensation dollars."

Types of STIs widely used today:

  • Bonuses (88%)
  • Individual incentive plans (39%)
  • Profit-sharing plans (19%)
  • Team/unit/small group incentives (26%)

Types of LTIs widely used today:

  • Performance awards or long-term cash plans (52%)
  • Phantom stock and stock appreciations rights (SARs) (33%)
  • Stock (26%)
  • Restricted stock (19%).

Survey data was gathered in September 2011 from 232 private companies with revenues ranging from $100 million to more than $5 billion. The corporate status of responding organizations was primarily C Corp. (30%), LLC (28%), subsidiaries (23%), S Corp. (12%) and partnerships (7%). The survey also included 90 nonprofit and government organizations. The survey was previously conducted in 2007.

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