Private Firms Recognize Value of Cash Bonuses

By Staff Report

Dec. 18, 2007

Cash bonuses are still king for high-performing employees, and many privately held companies are responding accordingly, a recent study says.

Nearly 80 percent of the 300 respondents to a WorldatWork and Vivient Consulting study say they have at least one short-term incentive plan; nine out of 10 companies with such plans say high-performing employees get bonuses for their hard work.

Using short-term incentives or variable pay programs is a great tool many private and public companies use to focus employees on critical goals, says Leonard Sanicola, compensation practice leader for Scottsdale, Arizona-based WorldatWork.

“This is the way to reward people and increase productivity,” Sanicola says.

Privately held companies with varying revenue sizes stay within 2 percent to 12 percent of operating income to fund their short-term incentive program, the study showed. Overall, participating companies’ revenues ranged from $100 million to more than $5 billion.

Critical to the success of any incentive program is communication and setting appropriate measures, Sanicola says. Incentive programs turn into entitlement plans when employees don’t understand company goals and the role they play in achieving them.

Employees “wouldn’t be as upset about not receiving a bonus if they understood how profit for a company is made and how their contribution influences that,” Sanicola says.

For Milwaukee-based Roundy’s Supermarkets Inc., managers and other high-level employees eligible for the bonus program are updated through e-mail, management meetings and other forms of communication.

“At the retail level, monthly scorecards provide opportunities for feedback in key performance areas,” says Vivian King, a company spokeswoman. Roundy’s, with $4 billion in annual revenue and 22,000 employees, measures performance through its sales and earnings before interest, taxes, depreciation and amortization.

WorldatWork’s study showed 49 percent of companies with short-term incentives used sales and specific individual goals to measure performance.

King said Roundy’s management teams’ rewards are based on the performance of their individual stores as well as the performance of the whole company.

“We believe the bonus program rounds out our compensation and benefits package,” King says. “[Short-term incentives] are common in our industry, but they do help attract and retain employees.”

Meanwhile, many private companies falter when it comes to offering more complex incentives. Only 35 percent of the study’s respondents say they have long-term incentive plans; only one in five would add or modify an existing plan.

For the respondents with long-term incentive plans, 34 percent use stock options, 33 percent use long-term cash plans, 19 percent had stock-appreciation rights, and 14 percent use restricted stock, the study showed.

Offering a long-term plan is simply more complicated, Sanicola says. While tax, accounting and legal issues are black-and-white obstacles, some owners have a hard time awarding even the most productive employees with a piece of the company. And while a cash payout may seem easier, liquidity issues often hamstring private companies, he says.

Roundy’s doesn’t have a long-term incentive plan.

“We try to put programs in place that make sense for our customers, employees and our business,” King says. “Until we find a program that truly fits our business, we shy away from implementing it.”

Patty Kujawa

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