Incentive Plans Flourish

The popularity of incentive plans remains steadfast as companies seek to better connect pay to productivity. In a study of incentive plans conducted by WorldatWork and Vivient Consulting, 97% of companies (a 2% increase from 2011) incorporated some sort 0f incentive pay plan as part of their total compensation strategy. Not only does the vast majority have these plans, but they frequently (75%) have multiple incentive plans and almost 40% have four or more plans.

In an ongoing attempt to engage employees, employers have pushed these plans deeper and deeper into organizations with over 40% of companies having plans for which hourly employees are eligible. In fact, 68% cited the need to align employee incentives with corporate goals as a prime reason for implementing the plan, and most companies reported this linkage as a strength of their plan.

The simpler the plan the more effective it is. Consequently, most companies will have three or fewer performance measures. And, while the average company’s investment in its incentive plan as a percentage of operating revenue may not be significant, generally about 5%, the individual payout can be, with 41% having a maximum payout of 200% of plan target.

Participation in long-term-incentive plans, on the other hand, dropped from 61% to 56% since 2011. The study did not speculate as to why. Long-term plans (LTI) like short-term (STI) plans relied on simplicity of structure and cash as the primary payment vehicle. Eighty-nine percent of the companies had only one LTI plan and 51% relied on cash as its primary payout. The top objectives of LTI plans were to retain employees, align employee incentives with long-term goals and to be competitive with other employers

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