How Incentive Plans are Changing in 2021 (And How They’re Not)

By Christie Summervill

How Incentive Plans are Changing in 2021 (And How They’re Not)

Should corporate incentive plans be paid out when the economy is sick with a pandemic and corporate goals are devastated outside of the control of executive management?

2020 data shows that 82% of companies that planned a corporate bonus paid it out. Those bonuses were largely based on 2019 results, in an economy that enjoyed soaring levels of consumer confidence and a willingness to take on debt. However, reports of deaths, military law, and coming inflation as a result of US government borrowing for stimulus funds, as well as the unpredictability of the 2021 economy, make planning an annual corporate bonus program uncertain.

Small businesses struggled with stay-at-home-mandated closures combined with protests and, in some cases, property damage from riots and looting. Even with PPP and EIDL resources, most small businesses are in a cash-preservation and cost-optimization mode. Revolving consumer debt, which small to medium-sized financial institutions depend on, has decreased while non-revolving debt, which includes lower interest-bearing auto loans and educational debt, increased by 6.1% as of November 2020.

Lingering Questions

Is there a role for the corporate incentive bonus plan this year?
Should lower performance targets be established to make eligibility easier?
If goals are not attained through no fault of our own, should we still not pay out a bonus?
Can we change the corporate scorecard and payout midyear?
If we pay out a corporate bonus, can we forgo a salary increase?

The answers lie in reconsidering the purpose of that program. If the corporate annual bonus is designed to add to the bottom line and to focus employees on strategic results, it is probably as important now as it ever was. For others, the purpose is to share the rewards of accomplished goals and reward employees who have dealt with a year of business and personal hardships. Either way, if your salary administration philosophy is to pay competitively to market in order to attract and retain talent, it is important that your corporate bonus program averages a payout equal to your peer group in addition to the average 2.8% labor budget increase.

Despite the economic fallout from the pandemic, 2 out of 3 financial institutions still plan to balance employee engagement with protecting their core business by aligning employee focus on results that add to the long-term and short-term bottom line.

Determining whether reevaluating the corporate scorecard midyear and changing the targets and payouts is acceptable or not should be driven by your salary administration document instead of a knee-jerk reaction based on fear. Setting staff expectations with advanced communication is key regardless of the approach. The kiss of death to any incentive plan effectively incenting behaviors is for it to just become an expected entitlement regardless of results.

The Market Still Rules

Having a corporate bonus program does not make paying a base salary that is competitive to the market less important. Base pay is for attracting and retaining talent. Where in the range a pay level should ideally fall is based on experience and performance. Bonuses are for value-added results. Despite the blunt trauma sustained by so many parts of the US economy due to the pandemic, only 10% of employers plan to not have pay increases. With employee willingness to change employers still high, taking a chance at not paying what the market will in base and variable pay is a risk not worth taking.

BalancedComp has just released its survey of average variable pay for specific positions. Talk to any of our Compensation and Performance Management Consultants to get your copy today!

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