Most private companies in the U.S. now offer long-term incentives (61%) in addition to short-term incentives (95%), according to a new study on pay practices by the nonprofit organization WorldatWork and Vivient Consulting.
Researchers for the groups found that 61% of private employers offer long-term incentives, such as stock and stock options. Almost all employers—95%—use short-term incentives, such as bonuses and performance-based pay.
Both long- and short-term incentives have grown more popular in the past five years. Long-term incentive use increased from 35% of employers in 2007 to 61% in 2011.
“Private companies face unique incentive compensation challenges,” said Kerry Chou, who leads WorldatWork’s compensation practice. “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 and publicly traded companies.”
Use of short-term incentive programs also grew from 2007 to 2011, from 79% of private employers 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, co-founder of 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.”
Four types of short-term incentives are most popular with private companies today (percentages indicate companies offering each incentive):
- 88% Bonuses
- 39% Individual incentive plans
- 26% Team/unit/small group incentives
- 19% Profit-sharing plans.
Private companies are most likely to offer these long-term incentives:
- 52% Performance awards or long-term cash plans
- 33% Stock and stock appreciations rights (SARs)
- 26% Stock
- 19% Restricted stock.