Sixty-one percent of private employers offer long-term incentives while 95 percent provide short-term incentives, according to a recent study by WorldatWork and Vivient Consulting.
The survey also finds that having a long-term incentive plan is common practice across all private for-profit corporations with the exception of partnerships. Although there are challenges regarding valuation and liquidity, long-term incentive use has grown from 35 percent in 2007 to 61 percent in 2011.
“Private companies face unique incentive compensation challenges,” says Kerry Chou, a WorldatWork certified compensation professional and practice leader. “The jump from 35 percent to 61 percent in four years was significant and reflects the need for private companies to compete for senior/executive-level talent with both private as well as publicly traded companies.”
Short-term incentive programs have also grown since 2007 from 79 percent to 95 percent.
“On the short-term incentive side, we saw an increase in the use of individual incentives and team/unit/small-group incentives,” says Bonnie Schindler, partner and co-founder at Vivient Consulting. “Spending on incentives as a percentage of operating income stayed constant overall from 2007 to 2011. This indicates that private companies are focusing their incentive dollars on specific key players with specific objectives in mind. Private companies are being smart and strategic about their compensation dollars.”
Short-term incentives that are now prevalent include bonuses at 88 percent, individual incentive plans at 39 percent, profit-sharing plans at 19 percent, and team/unit/small-group incentives at 26 percent. Among common types of long-term incentives are performance awards or long-term cash plans at 52 percent, phantom stock and stock appreciation rights at 33 percent, stock at 26 percent and restricted stock at 19 percent.
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