Jun 6 2023
The Power of Incentives: How Bonus and Incentive Plans Propel Companies to Success While Controlling Payroll Costs

How to Develop Bonus and Incentives Plans that Get Results

A common denominator in companies that excel is comprehensive and impactful incentive and bonus plans that drive the organization’s growth and achievement of critical goals. A well-designed program can motivate employees, improve performance, and fuel organizational growth. In addition to their impact on success, bonus and incentive plan also serves as a great way to control payroll costs. In this article, we will delve into the top five reasons why US companies with bonus and incentive plans are far more likely to succeed than those without while effectively managing their payroll costs.

Performance-Based Compensation

Bonus and incentive plans provide a performance-based compensation structure that links rewards directly to individual or team achievements. This approach allows companies to reward high performers while ensuring that compensation aligns with the value created. By incorporating performance metrics and targets into incentive plans, organizations can control payroll costs by rewarding top performers who contribute significantly to the company’s success.

Cost-Effective Retention Strategy

Employee turnover can be a significant drain on an organization’s financial resources. According to a 2022 study by Keep Financial, 86% of employees would stay at the company for a period of time in exchange for a cash bonus. Bonus and incentive plans offer a cost-effective retention strategy by providing rewards and recognition to high-performing employees. By motivating and engaging employees through these programs, companies can reduce turnover rates and the associated costs of recruitment, training, and lost productivity.

Variable Compensation Structure

Unlike fixed salaries or traditional pay scales, bonus and incentive plans introduce a variable compensation structure that allows for flexibility in payroll costs. These plans can be designed to align with the company’s financial performance, ensuring that compensation expenses are directly tied to business results. During periods of economic downturn or financial constraints, companies can adjust the bonus and incentive payouts to control payroll costs without sacrificing employees’ overall motivation and performance. To best measure and calibrate a plan, companies should consider four key plan design principles:

1. Ensure accurate measurement

Align payout curves with organizational expectations and ensure that incentives for performance are aligned with accurate measures of financial results. Objectives, in addition to financial goals, can be qualitative in nature. For example, building customer loyalty, raising quality objectives, or elevating employee morale, can be key organizational goals.

2. Balance short-term and long-term incentives

Determine the proper mix of short-term and long-term incentives. Short-term incentives are usually aligned to annual revenue or profit objectives; long-term incentives, on the other hand, are generally linked to added shareholder value over a longer period of time.

3. Promote compliance

Plans must be designed to maximize tax benefits for the company (and its employees) and do not violate any IRS rules. This applies not only to public companies but also to private companies. Investors and/or company owners are demanding greater accountability on incentive plans and how they are aligned to value creation.

4. Keep the plan workable

Simplifying compensation plans is crucial to ensure their effectiveness, as overly complex plans can be incomprehensible for participants. The key is to maintain simplicity in goal setting, award calculation, and the number of metrics involved. Ideally, limiting the metrics driving awards to three to five is advisable.

From: The Controller’s Report (Issue 13-7)

Cost Containment through Goal Setting

Bonus and incentive plans enable companies to define specific goals and targets that align with the organization’s strategic objectives. By setting ambitious yet attainable goals, companies can channel employees’ efforts toward driving performance and achieving desired outcomes. This goal-oriented approach helps control payroll costs by allocating incentives to individuals or teams who meet or exceed predetermined benchmarks. It allows companies to focus on rewarding exceptional performance rather than providing across-the-board salary increases.

Return on Investment (ROI)

Bonus and incentive plans can be seen as an investment in driving employee performance and organizational success. When properly designed and implemented, these programs yield a positive return on investment. A study published in the Journal of Labor Economics found that incentive pay significantly increased productivity, with the average return on investment ranging from 30% to 50%. By strategically allocating resources to reward high performers, companies can control payroll costs while reaping the financial benefits of improved productivity and business outcomes.

Calibrate Budget and Payouts

When setting bonus levels, consider the 80/20 ratio: Set your payout at a level where only 20 employees reach no more than 80% of the payout. If more than 20% of employees get more than 80% of the projected payout, your goal is too low. Ideally, the rule is that the bonus budget should payout only 60% of the targetted goal.

Set Realistic Bonus Levels

In deciding the amount of a bonus, one should consider budgets, payout, number of employees in the plan, objectives, ROI, and the total cost at the end of the plan year. Additionally, the payout must be attractive enough to be meaningful to employees. Although there are a variety of plan models, the typical bonus amounts, expressed as a base of regular pay, are as follows:

Conclusion: In addition to their impact on motivating employees and driving organizational success, bonus, and incentive plans offer companies an effective way to control payroll costs. These programs provide a performance-based compensation structure, act as a cost-effective retention strategy, introduce variable compensation, allow for cost containment through goal setting, and offer a positive return on investment. By leveraging the power of incentives, companies can strike a balance between rewarding exceptional performance and managing payroll costs, ultimately propelling their success in the competitive business landscape.

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Feb 12 2023
Pay Transparency – Quick FAQs

Pay Transparency & Wage / Salary Posting Requirements:

The Essentials

SALARY RANGE POSTING – The states of Colorado, Washington, New York, California, and Rhode Island all have similar requirements regarding posting salary ranges. That is, employers should post the minimum and maximum that they genuinely believe will be paid for the position. There are also several requirements based on the size of an organization. New York requires salary posting for companies with four or more employees. California’s pay transparency requirement applies to companies with at least 15 employees.

RECORD MAINTENANCE – Companies are asked to maintain pay transparency records, including a history of their salary ranges. For example, New York state law requires employers to maintain a “history of compensation” for posted positions and job descriptions (to the extent they exist). Employers should consider assessing how they store, aggregate, and categorize compensation records for each advertised job opportunity or position. Washington, California, and Colorado have enacted similar requirements.

BEYOND COMPENSATION: BENEFITS, BONUSES & EQUITY – Some states, including Washington and Colorado, require posting compensation information beyond salary ranges. Employers of these states must post the benefits offered with the position, including bonuses, equity, and any additional employee compensation. California, however, does not currently require this.

PAY COMPARABILITY PROTECTION – Most states to enact pay transparency legislation have done so in part to protect employees from gender discrimination. These protections forbid employers from the following: “Paying an employee of one sex a wage rate less than the rate paid to an employee of a different sex for substantially similar work, regardless of job title, based on a composite of skill; effort, which may include consideration of shift work; and responsibility.” In addition to gender, in 2017, California Senate Bill 1063 added extensions to Fair Pay Act protections to prevent race- and ethnicity-based disparities in pay.

Contact us for additional information on navigating your plan with pay transparency and job posting requirements!

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Apr 14 2022
Top Employer Concerns in 2022: Pay Transparency and Employee Benefits

2022 Top Compensation Trends

Pay Transparency Trends

As employees begin questioning their pay, while pay transparency continues to grow in popularity, employers are scrambling to defend their pay practices.

Salary information is becoming more available both formally, through legislation, and informally, through social media posts. Employees now have the valuable information they need to leverage conversations with their managers and challenge current compensation. 

States are beginning to require the publication of salary ranges for all classifications. Some examples of the trends in the legislation include:

  • CA Equal Pay Act – Employers cannot ask about the previous salary and must disclose pay ranges if asked during an interview
  • CO Equal Pay for Equal Work – Employers must include salary ranges and benefits information in every job posting as well as disclose promotion opportunities and keep track of job descriptions
  • NY – Employers must post maximums and minimums on all job postings or promotions by November 2022 (extended from May 15th) 

More casually, there is a societal shift to make salary information less taboo. Coworkers are no longer ashamed of sharing how much they make in the company. A poll conducted in 2022 by YouGov Plc found that of their sample of 2,500 adults, 42% of Gen Z workers, ages 18-25, and 40% of millennial employees, ages 26-41, have shared their salary information with a coworker or other professional contact.

Many companies are not prepared to discuss the warrants for current salary ranges and are left with unhappy employees who still have pay concerns. Payscale has reported that employees are 50% more likely to leave if they think they are being paid below market, even if they aren’t. Some 57% of people paid at the standard market level believe they are underpaid, and 42% of those paid above the market think they are underpaid. This highlights the value of a compensation study where you can provide employees the ease of mind that they are being compensated based on their talent and skills in a competitive organization. 

Benefits Trends

Total compensation is more than just cash; it’s the entire package that includes benefits available for employees based on budget. Companies are getting creative to make sure their employees perceive a good work/life balance. With changes in work models, like remote or hybrid arrangements, we are also seeing more companies jumping on the trend to offer unlimited time off.

The United States is the only developed country with no federal law requiring employers to offer paid holidays to employees. But companies are still trending to achieve work-life balance through this new perk: Unlimited Paid Time Off. While this is a debated topic, with people worried that this may be a trap to keep people constantly thinking about work, a recent study shows that 82% of employees that have unlimited PTO have the best rates of work-life balance. Competitive PTO (limited or unlimited) is more than just a mechanism to attract and retain top talent. These packages make business sense, especially for companies prioritizing innovation where we are looked at as a model to set expectations for productivity. To do good work, people must take care of themselves. Recovery is a lifestyle practice making its way into industries where creation and innovation are the organization’s backbones. 

If you’re looking to expand your benefits program, we welcome you to get inspiration from the list below for the most popular benefits and perks to include in your plan. We have compiled these options for you to consider as you continue to build your employee engagement.

Consider These Benefits Trends:

  • Flextime and Work-at-Home Options
  • Flexible holidays
  • Commuter Assistance
  • Performance Bonus
  • Vacation reimbursement: one-time bonus to use while taking time off
  • Healthy Cafeterias and Snack Machines
  • Home Office Stipend
  • In-office Career Development
  • Wellness Facilities and Support
  • Annual Learning Stipends for participating in industry certifications, seminars, or classes
  • Generous Parental and Caregiver Leave
  • Volunteer Time Exchange
  • Free Desktop Music
  • Personal Care Services – Bring in a stylist once a month for haircuts or try dry cleaning drop off
  • Discounted Access to Company Products/Services
  • Stock/Stock Options/Equity
  • Gym membership
  • Insurance coverage for you and your dependents

Affirmative Action Planning

With federal and state agencies prioritizing pay equity, you must identify, study, and address potential areas of vulnerability and help your pay system achieve your goals for equity, competitiveness, and compliance. This Risk Analysis is a report designed to provide clients a gateway to viewing potential pay equity liabilities across multiple tiers by leveraging comparisons by job title, job group, experience or seniority, and EEO category.

In our efforts to help organizations achieve pay equity and move closer to establishing equal pay for equal work, Blue Whale has launched Blue Whale AAP. Our Affirmative Action Planning supports government contractors and any business that wants them as a customer to stay in compliance with federal regulations easily.

This methodological process starts with data cleansing and your workforce activity data reconciliation. From this, we plan development, data system coding, reporting, and monitoring your hiring, promotion, and termination practices. Next, we develop an Adverse Impact Analysis to do potential bias testing in your HR practices to ensure we have the most accurate narrative.

Learn more

4/14/2022

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Jan 1 2022
Nonprofits Comp and Employee Trends, 2022

Nonprofit Comp and Benefits Bulletin – 2022

Top Trends

At Blue Whale, we specialize in helping companies achieve their company goals for equity and social responsibility. Schedule a call with our expert consultants to ensure your current compensation practices are set up to help you attract and retain top talent.

View the most important employee compensation trends to keep in mind as your company navigates new challenges going into the new year.

New Minimum Wage Mandates Brings Reasonable Compensation Levels of $17 per hour

Effective 1/1/2022, the minimum wage for employers with at least 25 employees will be $15 per hour. However, to minimize the high level of attrition rates plaguing most employers, companies should position their starting rates at no less than 12% of the local minimum wage level. For example, this would be $16.90 for California employers. A 12% difference to the minimum wage is generally recommended as the threshold that companies should use to stay competitive in today’s active labor market.

States where there are changes in minimum wage requirements.

Inflation worries and rising wages will force employers to offer larger raises

As 2022 approaches, California employers will face stiff labor force troubles. With resignation happening at unparalleled rates and inflation at a twenty-year high, employers will likely use compensation to safeguard their employee talent. Moreover, based on findings from the last quarter in 2021, there is evidence to suggest that wages and salaries are poised to grow at a rate not seen in years. In all, companies should plan to address movements between 3.5% to 4.5%. Shape Description automatically generated with low confidence

New: 2022 California Exempt Employees Minimum Salary Increases

California employers should review the base salary for all exempt employees to ensure the employees meet the compensation required to be exempt. As the state’s minimum wage goes up on January 1, 2022, the minimum salary to qualify for the white-collar exemption is as follows:

  • Employers with 25 employees or less: The equivalent of two times the minimum wage of $14 per hour, or $58,240 per year ($1,120 per week)
  • Employers with at least 26 employees: The equivalent of two times the minimum of $15 per hour or $62,400 per year ($1,200 per week)
  • For computer professionals, the minimum salary is $50.00 per hour; $8,679.16 per month; $104,149.81 per year

**It must be noted that the salary basis test is set according to the California State minimum wage – not the minimum wage set by various local cities and counties in California.

California Pay Data Reporting, 2022

For employers with at least 100 employees, a reminder: California law (Government Code §12999) requires employers to annually submit data on the pay, hours worked, and demographics of their employees to the California Department of Fair Employment and Housing (DFEH). The first filing deadline was March 31, 2021, and annually after that on March 31. For more information about this law, including, filing instructions visit https://www.dfeh.ca.gov/paydatareporting/

It’s Time to Update Parental Leave Policies

For purposes of qualifying leave under the California Family Rights Act (CFRA), AB 1033 – passed in 2021 and takes effect on January 1, 2022 – adds parents-in-law to the definition of “parent“. AB 1033 expands SB 1383, which took effect on January 1, 2021, requiring employers with five or more employees to comply with the CFRA. CA employers should review their CFRA policies to ensure compliance with these recent changes.

Pay Gaps & Development Roles

Although the salary of a nonprofit development job depends on several factors (such as region, experience, education, mission/focus of the nonprofit, organization size, and more), narrowing down a precise salary for these positions is made more difficult by gender pay gaps.

Comp Stats – 2022 Adjustments and Increases

PROJECTED INCREASES FOR EXECUTIVE-LEVEL MANAGEMENT
  • Performance-based adjustments for senior-level VPs are averaging 4.3%
  • Performance-based increases for staff are up from the pre COVID-19 average of 3.2% to 3.5%
  • Labor costs, including pay and benefits, will increase by 2.3%
GENDER PAY DIFFERENCES
  • To prevent gender-based market flaws from filtering into their compensation programs, companies should set their benchmark levels 10% to 15% above prevailing market ranges
  • Gender pay gaps from nonprofit organizations in Northern California averaged around 12%, while in Southern California, they were found to be around 16%
PROJECTED MEDICAL COSTS
  • Medical premium increases for 2022 will fall between 4.1% to 4.3%
  • Employee contributions towards their health plans will increase by 4% for those with individual coverage and 5% for family coverage
STAFFING LEVELS AND COSTS
  • The voluntary attrition rate will likely jump to 10 per every 100 employees
  • While 58% of nonprofits said that COVID-19 had a significant negative impacted on their operations in 2020, in 2021, their labor cost-reduction actions will be minimal
  • The majority of employers (90%) are signaling aggressive plans to maintain existing labor levels and locking key talent by providing salary adjustments equal or higher than pre-COVID19 levels

Download the PDF here

Development Functions and Gender Gaps

Perhaps trying to recoup lost revenue, nonprofits are aggressively building their development efforts, and this has caused a surge in job offers to development-related professionals.

Gender pay gaps, in fact, often make competitive offers to highly sought candidates less than what they need to be, and nonprofits should be vigilant to their impact. Here is why:

Despite efforts to narrow disparity, the gender pay gap may be getting wider. In a 2017 article, Perennial Resources International cited that pay differences between men and women were about 5%. However, in multiple gender comparison cohort groups, these gaps were consistently averaging around 12% as reported by GuideStar 2020 compensation survey.

SALARY OFFERS FOR DEVELOPMENT PROFESSIONALS ARE HITTING AN ALL-TIME HIGH

For example, senior VPs, responsible for all development functions are commanding salary offers close to $164,000 in the San Francisco Bay area. However, in Southern California, with a lower cost of living, similar positions are commanding salaries around $145,000.

Other classifications are experiencing salary offer highs. Offers to directors in Northern California are averaging around $97,000; while in Southern California, they are commanding offers around $81,000. Program associates are getting about $62,000 in the Bay Area and $55,000 in Southern California.

The higher-than-average salary offers have pushed development-related classifications to a 3.6% jump. In 2020, on the other hand, only saw a modest 2.8% increase.

Not only are development jobs leading the way in salary offers, but they are also on top of merit-driven increases: Whereas in general, merit-driven increases averaging between 3.2% for entry and intermediate level jobs, to 3.5% for senior professional staff and mid-level managers, development positions, year-to-year change, is about 3.8% for professional and mid-level managers.

AVOID THE PITFALLS OF EVER-WIDENING GENDER PAY GAPS

Although gender pay gaps are widely known, organizations often miss the unintended role they play in their job offers. When organizations make job offers, they often rely on the “prevailing” market. However, in reality, the market may be uncompetitive and unrealistic – both to the detriment of the organization and to qualified and highly sought-after professionals, both male and female.

As an example, consider how gender pay gaps affect the recruiting chances for a top development official. Based on survey data reported by GuideStar, the average salary for a Development Sr. VP is $224,000. However, the male salary is found to be $241,000 and the female $200,530. In this case, the gender pay gap, in essence, has the unintended effect of deflating the overall salary level. For example, suppose the organization proceeds and makes an offer based on the prevailing salary of $224,000. In that case, they will be underbidding the more competitive salary level of $241K, thus increasing their chances that their offer will be refused.

Even if the candidate accepts the offer, and if they have an above-average resume, the tenure in position is likely to be around two years – much less than the 4.2 years estimated by the Bureau of Labor Statistics for such a position.

In general, nonprofits should at least discuss making offers above 10% of the general market as reported in most reputable surveys. Otherwise, the company may be making a low-ball offer to qualified and talented professionals.

January 1, 2022

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