A recent study conducted by WorldatWork and Vivient Consulting LLC sheds much needed light on the topic of incentive pay practices in private companies.
With permission from WorldatWork, I share a few highlights here:
Plan Prevalence
Short-term (or annual) incentive pay is used extensive at private companies (79% report having such a plan), but long-term incentives are not. Only 35% of participating companies report having an LTI in place (compared to public companies, where my research would suggest LTI prevalence of 65%-70% or more).
Short-Term Incentives
The median STI budget (approximate), as a percent of operating income, reported by study respondents is 6% - an interesting and helpful finding. More than half of participating companies (57%) use a bonus pool to structure and fund their STIs, and most (74%) report that subjectivity is used in plan award decisions.
Long-Term Incentives
Of respondents whose companies offer LTI plans, approximate one third (34%) use stock options and one third (33%) use cash-based performance awards. Restricted stock, an increasingly popular vehicle for public companies, is used by only 14% of the private companies surveyed; a reflection of the reluctance of private companies to grant/share real ownership. Those surveyed offer modest equity pools (shares set aside for current or future employee LTI grants); more than half report pools of 10% or less (of total equity).
Jim Stoeckmann CCP, a WorldatWork staff member involved in the study, tells us:
This study is significant in providing trend information on compensation and pay practices for private employers. While there are many sources of information of this type for public employers, it's more difficult to find published information for private employers. This survey provides an invaluable resource for those designing pay plans for private employers.
I would agree with Jim that this is a unique resource for those charged with developing short-term and especially long-term incentive plans in private companies. My experience in this arena would suggest that, although LTIs are not very prevalent in private companies (due to a number of challenges, not the least of which is either a reluctance to share equity or the lack of a market for the equity that will be shared), these employers are feeling increasing pressure to create longer-term reward vehicles for a number of reasons - from competitive practice to the need to align the efforts of key employees with company success over a longer timeframe.
The full and detailed research report is available on a complimentary basis to all WorldatWork members on the Association website. Nonmembers may inquire about purchasing a copy by contacting WorldatWork directly.
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