Incentive plans for salaried workers at small and mid-sized firms have become more sophisticated, a study conducted by the Illinois-based consulting firm Hewitt Associates concludes.
Of the 174 companies responding to the survey, 137 provide incentive or bonus prgrams for their top-salaried executives. "Far more small companies are relying on variable compensation than was the case 10 years ago." says Bill James, a partner at Hewitt, "and the idea of paying just a salary with no bonus is disappearing."
The most popular form of incentive award, according to the survey, is a cash bonus, paid on an annual basis. Most of the firms base their bonuses on a percentage of the executive's salary; 63 of the companies have "target award" plans that tie the bonus to achievement of a specified level of performance.
Not all small companies reward executives in cash -- 56 of the firms surveyed offer stock option plans to management personnel. Typically, these stock option bonuses are made less frequently than are cash bonuses.
The degree of formal planning involved in small company bonus plans was "surprising" to the consultants. "For years, small and mid-sized companies' incentive programs were very informal," James comments, "and we expected they would still have far more discretionary plans and after-the-fact arrangements."
Small companies also include more of their employees in incentive programs than do the giant corporations, another Hewitt study suggests. Surveying the top 100 companies in the Fortune 500, the consultants found that only 5.6% of the executives in those firms were eligible for their companies' bonuses. Half the small firms included at least 14% of their professional, managerial, and administrative personnel in the annual incentive plans.