Bonus Plans
Are you designing a new bonus plan for a start-up company? Or in an established company trying to determine what bonus you need to offer to compete with tech companies?
Companies give out bonuses in order to motivate their staff and employees, boost morale and encourage quality performance. Rewarding employees for performance helps them see a physical indicator that directly impacts their compensation.
What is a Bonus Plan?
An employee bonus plan provides compensation beyond only annual salary to employees as an incentive or reward for reaching certain individual or team goals. The purpose of bonus plans is to provide recognition for employees who go above and beyond their normal work obligations and showcase their hard work and commitment to their position.
Bonus practices vary widely by business model, ownership category and industry. To gain insight into the bonus practices of technology companies, it is instructive to look at the results of our recent survey* of companies in digital media, eCommerce, digital advertising services and search / social media. The survey results show what the market offers to employees with digital skills. The survey results include bonus plan design as well as year end bonus average by position.
Design a Bonus Plan
The survey found most participant companies offer some form of short-term incentive plan. Eligibility for bonus plans differs by ownership category, whether a private or public company or a digital division of a parent company. Approximately half of participants offer a short-term incentive plan to all employees and half limit eligibility. When eligibility is limited, private companies and divisions generally limit bonus eligibility to manager level and above, while public companies generally extend eligibility to exempt individual contributor levels on up in the organization.
The most prevalent type of bonus plan is a plan funded based on company financial performance and distributed based on management discretion about team or employee performance. Other types of bonus plans include plans based on formula or MBOs. Discretionary plans—plans which are both funded and distributed at the discretion of management—are common among private digital companies.
Other elements to consider when designing a bonus plan include:
- Selecting financial metrics to use as funding measures, whether single or multiple measures, such as revenue, net operating income and EBITDA,
- Setting a funding threshold with corresponding award lines that pay less than target incentive at threshold,
- Setting a funding maximum with corresponding award lines that pay more than target incentive at maximum, and
- Setting an award cap to cap individual awards as a percent of target or base salary.
Our survey results found that most participants pay STI awards annually, in cash.
For more questions about the survey results or for assistance designing bonus plans, please contact The Croner Company.
* The 2020 Croner Digital Content and Technology Survey
For more information, please contact Laurie Krashanoff, Manager, Account Relations, at +(415) 485-5521 or laurie@croner.com.
Follow this link to find out more about The Croner Company’s compensation surveys.