Short-term incentives (STIs) have become nearly universal at private companies to align pay with short-term performance, according to a recent survey by CAP and WorldatWork. “2019 Incentive Pay Practices: Privately Held Companies” found that STI prevalence reached 99 percent in 2019, up from 96 percent in 2017 and 94 percent in 2015.
Other key survey takeaways include:
- Spending on STIs increased to 6.5 percent of operating profit at median in 2019, up from 6 percent in 2017 and 5 percent in prior years.
- The prevalence of Annual Incentive Plans (AIPs) increased to 86 percent in 2019, up from 82 percent in 2017. The prevalence of all other types of STIs (i.e., spot awards, discretionary bonuses, team/small group incentives, project bonuses and profit sharing) fell in 2019. This indicates that firms are consolidating their STI spending on structured AIPs that incorporate companywide financial metrics and other objectives.
- AIP plans continue to be offered across the organization, with two-thirds of organizations providing eligibility to all employees.
- Long-term incentive (LTI) prevalence increased in 2019 to 62 percent. This is up from 54 percent in 2017 and 53 percent in 2015. The increased prevalence reflects that private firms are competing for top talent with publicly traded peers in a tight labor market.
- LTIs continue to be awarded to top management only.
The full results of the private company survey are available to WorldatWork members.