A large majority of employers rely on incentive-based pay practices to compete for top talent, as well as to motivate and reward employees, according to research by the nonprofit WorldatWork organization, Deloitte Consulting and Vivient Consulting.
“Incentive programs are alive and well at companies from all different sectors,” said Kerry Chou, WorldatWork senior practice leader on compensation. “The data shows no indication of companies pulling back or reducing the use of these types of programs.”
The research effort directly compared short- and long-termacross the three sectors: publicly traded firms, privately held companies and nonprofit and government organizations.
Annual incentive plans were the most popular form of variable pay, used by 90% of publicly traded corporations, 86% of privately held firms and 76% of nonprofit and government employers. Spot awards—one-time bonuses that reward superior performance—were the second most common; 66% of publicly traded corporations used them, as did 39% of private firms and 42% of nonprofits and government agencies.
Long-term incentive plans enjoyed great favor among large corporations—88% employ them—but only 56% of private firms and 16% of nonprofit and government employers do. The availability of stock options incentives in publicly traded firms explains the difference.
“This study demonstrates the continued, nearly universal popularity of short- and long-term incentives in public companies as a means of motivating and rewarding results and behaviors while effectively managing organizational compensation costs,” said Greg Stoskopf, of Deloitte’s compensation strategies consulting practice.
“The main difference is long-term incentives, where privately held organizations are focusing on long-term cash plans rather than restricted stock or options. Cash is king, particularly when it comes to retaining top talent,” noted Bonnie Schindler, partner at Vivient Consulting.