Compensation leaders recognize the value of recognizing and rewarding one of the main drivers behind an organization's success in the marketplace—top performing employees.
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Get Your Report Now!Annual bonus programs are one avenue companies use to reward employees for their contributions. However, smaller bonus pools, unfair distributions, misalignment of goals, and other obstacles can plague the integrity of the system and potentially send talent out the door.
Pay for performance programs are one tool organizations are using to try to retain top performers.
To help compensation organizations understand how other industries and high-performing companies deploy their pay for performance systems, research and consulting firm Best Practices, LLC, conducted a benchmarking study. The research project, which involved human resources leaders across industry sectors, evaluated incentive systems with the goal of identifying strengths, gaps, and improvement opportunities.
The study, “Driving Growth & Talent Retention through Pay for Performance,” investigated how compensation organizations at leading global companies are structuring and implementing pay for performance annual bonus programs to reward top performers and retain talent in today's environment of shrinking resources and increasing talent competition.
While pay for performance systems usually are used to retain top performers, almost half of the study's large workforce segment said decreasing overpayments to low performers was also a primary reason for using a pay for performance system.
Key findings
Most pay for performance programs are multifaceted. Companies in both the total benchmark class and the large workforce segment indicated their respective pay for performance programs include annual salary increases, individual performance ratings and reviews, short-term and long-term incentives, and noncash rewards and/or recognition.
Job level determines bonus eligibility for many companies. Few companies make all employees eligible without any exclusions. For example, at 39 percent of companies in the total benchmark class, only employees at a certain baseline job level (and above) are eligible for the annual bonus plan. For respondents who indicated their eligibility criteria is more tailored, commonly excluded groups of employees are sales, senior management, and temporary employees.
Managers follow payout guidelines with recommendations. Nearly half of respondents indicate that managers follow payout guidelines and recommendations to determine bonus amounts. Only 5 percent said they leave bonus setting decisions entirely up to managers.
To access the full report or to download a complimentary summary, go to http://www3.best-in-class.com/rr1213.htm.