US companies revising variable pay plans

VARIABLE PAY

US companies revising variable pay plans

Many US employers have revised their variable pay plans for non-executive workers in the past 12 months or plan to do so next year, according to a survey by Watson Wyatt.

The changes signal a continuing shift from fixed to variable compensation. According to the survey, 82% of companies now have a variable pay programme for non-executive employees, and 49% of organisations have a plan for all employees. Among respondents planning future changes to their reward programmes, 43% plan to put greater emphasis on variable pay.

Types of changes made

Watson Wyatt found that about half (49%) of all respondents with variable pay plans have revised them in the past year. Of the changes made, the most common were:

• revising the performance measures on which bonuses are based (68%)
• increasing goals employees are expected to achieve to earn an award (46%)
• more than one out of four (27%) increased the size of target awards employees receive for achieving goals.

"Employers are trying to better link variable pay programmes with organisational and individual performance," said Laura Sejen, director of strategic rewards consulting at Watson Wyatt. "Clearly, employers are raising the bar for employees. As variable pay becomes more prominent, companies are realizing they need to carefully distinguish reward allocations to recognise outstanding employee performance if they are going to attract and retain top talent."

Change widespread in low-performing companies

The survey found that low-performing firms reported making the most revisions to their short-term incentive plans, with 63% having made changes in the past 12 months. Only 40% of high-performing companies reported making revisions to their plans, and among these, 44% increased target awards.

"Low-performing companies -- feeling the need to catch up in the race to attract and retain top workers -- are rapidly changing their pay programmes to help make that happen," said Sejen. "High-performing companies have successfully used variable pay programmes to recruit and keep workers, and it appears their low performing counterparts are trying to follow their lead."

Want to know more?

Title: Strategic Rewards Survey 2004/2005, Watson Wyatt.

Sample size: A total of 242 US organisations participated in the survey, representing the full spectrum of industry sectors and geographic regions

Availability: For a copy of the survey report, visit www.watsonwyatt.com

Watson Wyatt Worldwide is a global human capital consulting firm that provides services in the areas of employee benefits, human capital strategies and related technology solutions. With headquartered in Washington DC, it has 3,900 associates in 61 offices in the Americas and Asia-Pacific. Together with Watson Wyatt LLP, a leading Europe-based consulting partnership, the firm has more than 6,000 associates in 88 offices in 30 countries.

Posted 22 November 2004