Over 90% of Employers Use Short-​Term Incentive Plans

BY Kathy Crosett
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In today’s tight labor market, you could spend a fortune trying to lure the kind of talent you need to succeed. If the thought of sky-​high salaries is keeping you up at night and crimping your profitability, consider an alternate strategy. These days, more companies use short-​term incentives to attract talent and to encourage team members to achieve the goals you’ve set.

Plan Details

Publicly traded companies have long used incentive plans to drive members of the c‑suite to set goals that result in specific profitability or stock-​price levels. A growing number of privately-​held companies are doing the same thing. Most of these companies, according to the WorldAtWork, 2018 Incentive Pay Practices: Privately Held Companies survey, use the following types of incentives:

  • Annual incentive plans 82%
  • Spot awards 58%
  • Discretionary plans 50%
  • Profit sharing plans 26%
  • Project-​specific awards 21%
  • Group incentive plans 19%

WorldAtWork found that over 95% of the 215 private companies in its survey manage some type of short-​term incentive plan. The value of these plans amounted to about 6% of operating profits.

The value of STIs to employees varies widely by job level. For example, the CEO may be able to qualify for an award that is worth up to 80% of their annual salary. On the other hand, the typical nonexempt employee can anticipate an award of 5% of base salary if targets are met.

Plans and Company Size

Managing a STI plan with several levels can be expensive and time-​consuming. Not surprisingly, large organizations have the resources to offer these programs. About 71% of enterprise-​class organizations, those with 5,000+ employees, offer individual incentive bonuses and 52% offer spot bonuses. Smaller businesses, those with between 1 and 99 employees, also use incentive bonuses (62%.) However, 21% of SMBs offer profit sharing plans, while only 17% of enterprise-​class businesses do. 

Who Qualifies

At larger privately-​held companies, the STI plans include 76% of exempt employees and 52% of nonexempt employees. By job title, about 87% of CEOs qualify to participate in these plans, as do 96% of other executive and 94% of managers and supervisors. 

Regardless of the type of incentive plan you employ, you’ll be able to limit the expense of an ever-​higher payroll each year. These plans also generate greater employee engagement. Team members quickly understand that they can personally benefit when they work harder to improve the bottom line.