Overview of Employee Incentive Pay

Employees in approximately one-third of all companies are eligible for bonuses of some kind. Bonuses are given to employees to serve the following purposes: to create incentives to reduce costs; to pay people for doing a good job; and to encourage employees to think like shareholders.

Bonuses reflect employees’ level of responsibility in the organization, making up a larger portion of ones total compensation as one takes on more responsibility. To ensure accountability and to reward an employee for his or her responsibilities, companies tie portions of employees’ pay to both individual and company successes. Corporate triumphs take on greater importance in a given employee’s bonus as the employee climbs the corporate ladder. This is because at higher levels of the organization, employees are more accountable for the success of the company.

It was not long ago that only managers were eligible for variable compensation and stock options. But by the late 1990s all that had changed. As America woke from its recessionary slumber and entered into the 20th century’s longest and most powerful economic expansion, shareholders and executives began to make unprecedented wealth.

This newly created wealth followed closely on the heels of the slash-and-burn employee policies of the early 1990s that created much unemployment and loss of benefits for many workers. Company loyalty was damaged irreparably as employees watched their companies’ executives make more and more money while their own employment and benefits were being taken away. This was to change, however, as the strong economy began to benefit all employees.

Today, despite the current economic slump, there is a shortage of qualified employees in certain jobs. Companies have to work hard to attract and retain their workforces. Last year, companies were including more of their workforces in their annual incentive plans and—in some cases—even including nonexempt hourly workers. The rationale was that not only did it place the company in a better position to keep the employee, but it also allowed employees to share in the “wealth” created by their activities.

Of course, if the company doesn’t create much wealth, there isn’t much to share. In contrast to base salary, bonuses are usually not guaranteed from year to year, so they can be an effective way for an employer to have a lower fixed component of its personnel budget. In the current environment, he said, performance-based bonuses are almost certain to go down.

If your company is struggling to meet its earnings targets this year, you’ll probably find that your bonus will be smaller, if you get a bonus at all. In today’s economic climate, some employees whose companies paid generous bonuses will be tempted to leave in favor of situations with a higher base pay.

Still, bonus plans can be invaluable to employees who want to know what they need to do to succeed in a company. Bonus plans communicate the values the company stands for and the behaviors it celebrates. The people who get promoted at a company also get the biggest bonuses and the most recognition.

A good way to be successful at a company is to get noticed. And the best way to get noticed is to do the things that will earn you a good bonus. So when you start a new job, learn what plans your company offers; read the company newsletter and the bulletin board; and learn the unwritten rules about what gets rewarded. Pay close attention to the employees who get recognized and promoted. Notice what they do and how they do it to get clues as to what actions and cultural behaviors are prized. And organize your work around meeting the criteria for bonuses. Also, volunteer for special projects since those will often get you visibility and a bonus.









Business, Company, employment, HR