Short-term Incentives Now Universal at Private Companies
Surveys Reveal State of Short-Term and Long-Term Incentives at Private Companies and Nonprofit/Government Organizations
December 09, 2019
December 10, 2019 — Scottsdale, Ariz. — The pervasive use of short-term incentives (STIs) among private employers (99 percent) is indicative of their desire to reward employee performance and compete for talent in a tight labor market. Among nonprofit and government organizations, 68 percent make use of STIs. These are two of the findings captured in the 2019 Incentive Pay Practices: Privately Held Companies and 2019 Incentive Pay Practices: Nonprofit/Government Organizations surveys conducted by WorldatWork in partnership with Compensation Advisory Partners (CAP). WorldatWork began conducting the surveys on a biannual basis in 2007 in partnership with Vivient Consulting, which merged with CAP in 2019. (Journalists: for copies, contact firstname.lastname@example.org)
“These unique surveys fill the void in market data on private company pay practices,” said Susan Schroeder, CECP, co-founding Partner at Vivient and now a Partner at CAP. “The surveys continue to provide important information for private companies and nonprofits to attract and retain the talent needed to operate their businesses.”
Key Findings: Private Companies
Spending on STIs reflects 6.5 percent of operating profit at median, up from 6 percent in 2017 and 5 percent in prior years; companies are allocating more to reward, attract and retain talent.
Annual incentive plans (AIP) are the most common type of STI (86 percent), compared with other STIs (e.g., spot awards, project bonuses), as firms seem to be consolidating their STI spending on structured AIPs that incorporate companywide financial metrics and other objectives.
An uptick in long-term incentive (LTI) plans, 62 percent vs. 54 percent in 2017, indicates private firms are competing for top talent with publicly-traded firms.
“One of the most compelling takeaways in the 2019 survey is the increased use of LTI plans by private companies,” said Sue Holloway CCP, CECP, Director, Executive Compensation Strategy, WorldatWork. “Private companies realize they need this Total Rewards component to up their game to compete with public companies for top management talent. An earlier survey from WorldatWork showed 90.6 percent of publicly-traded companies have an LTI program.”
Key Findings: Nonprofit/Government
Three out of four (76 percent) nonprofits use STIs. For these organizations, STI spending is two percent of operating budget at median.
The most common types of STI plans are AIPs and spot award programs, with discretionary bonuses, project bonuses, team/small-group incentives and profit-sharing plans in the mix.
STI plans are being simplified as nonprofits are getting used to having these plans as reward tools. The prevalence of organizations using 10 or more performance measures in their AIPs decreased in 2019, and more organizations now report using four to six performance measures.
Long-term incentive plans are used by a minority, with 22 percent reporting an LTI plan in 2019.
“One of the most interesting trends this year is the decrease in the number of performance measures used by nonprofits,” said Bonnie Schindler, CECP, Principal at CAP. “Four to six performance measures are now prevalent, reflecting a move toward more holistic but manageable incentive management frameworks. Discretion also continues to play a role in incentive decisions given the difficulty in measuring performance objectively without a true profitability metric.”