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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Dec 20 2022
How to Boost Employee Morale With Powerful Pay Strategies

How to Increase Employee Engagement in 2023

Talent and Cost Balancing Management Tips

In the last three years, it has been common for HR professionals to face new challenges and opportunities in the ever-evolving world of human resources. Next year will not be the exception. One of the most pressing concerns that many organizations will face in 2023 will be managing labor costs while maintaining a competitive edge and providing employees with fair compensation and working conditions. This can be especially challenging in the current economic climate, where changes in the job market, shifting business strategies, and other factors can impact the bottom line.

Keeping labor costs under control for HR professionals requires a strategic approach that balances the business’s needs with the talent and resources needed to stay competitive. In this post, we highlight easy wins to keep costs under control. Whether you are an HR manager, director, or someone interested in the field, this post will provide valuable insights and information to help you stay ahead of the curve.

Talent and Cost Balancing Strategies for 2023

In conclusion, by implementing strategic measures to save labor costs, companies can maximize their savings and revolutionize their approach to managing their workforce. Embracing technology, optimizing scheduling and staffing, fostering employee engagement, and investing in training and development are just a few strategies that can drive significant improvements in productivity and efficiency while reducing labor expenses. By taking a proactive stance toward labor cost management, businesses can pave the way for long-term success and profitability in today’s competitive landscape. So, why wait? Start implementing these strategies today and witness their transformative impact on your bottom line and overall workforce management.

12/20/2023

Need Business expert advice on how to manage your compensation program? Call us today!

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Oct 21 2022
Total Rewards: How to Find Compensation Strategies that Work

Raise your Company’s Engagement Index: Compensation Strategies That Work!

In today’s rapidly evolving employment market, it is imperative for organizations to place a strong emphasis on their compensation and benefits offerings to engage their existing workforce and attract prospective candidates effectively. Recent research conducted by the Society of Human Resources has highlighted the undeniable influence of compensation as a key determinant of job satisfaction among employees. A comprehensive and competitive package has a direct correlation with higher rates of employee retention and improved productivity. By minimizing turnover and fostering an environment of enhanced morale, productivity, employee satisfaction, and organizational culture, companies can optimize their financial resources and cultivate a more positive and flourishing work environment. So, what are the necessary steps that can help you raise your organization’s engagement index?

Find out what your employees want

Finding out what your employees prioritize will also help determine if your organization is in line with what employees are looking for to better capitalize on the funds utilized for compensation and remain competitive.

One method of determining your employees’ wants and needs is to distribute surveys among a wide variety of staff members. Alternatively, employers could coordinate interviews of focus groups to facilitate open discussion.

During this process, question what your employees’ value and account for variations based on different groups and demographics.

Do an Inventory of the latest Compensation Trends

Studies show job candidates and employees look for a key component: the compensation and benefits package.  In addition, several aspects that affect compensation can change over time, such as the size, revenue, or location of an organization or each employee’s role. Therefore, organizations must regularly review compensation and benefits to retain and attract employees. As you review the latest trends, highlight your comp and benefits program under a total rewards strategy. Employees may overlook the value of total rewards programs if they are not presented within the framework of a comprehensive total rewards strategy.

Leverage The Value of Your Employee Benefits

It is important to help employees better understand what benefits are offered to them in order to avoid dissatisfaction due to pay.  Once employees clearly understand their total compensation package, they will most likely focus on all the compensation and benefits offered. Remember, 40% of your labor costs are associated with your benefits package. The cost includes not only medical benefits but all employee insurance programs, time-off, pension, and mandated employer-related taxes

Develop A Strategy that blends your organization’s Culture and Value

Once recommendations have been accounted for, account for your organization’s values and pay philosophy.  Also, account for the return on investment and how changes could address attraction and retention.  Be prepared to act or explain why such benefits are or will not be offered.

Flexible Solutions

To stay relevant and reach a widescale workforce, it is recommended that your organization offers flexible benefits that are customizable to your workforce. For example, there are a lot of different options to choose from when it comes to selecting a benefits package.  Some options include health insurance, paid leave, retirement benefits, flexible scheduling, or tuition reimbursement.  Also, flexible work arrangements are highly priced by employees: They offer the flexibility and cost-saving options often sought by employees.

Top Performer Benefits

Lastly, consider adjusting your compensation strategy for top performers and those that exceed expectations to further incentive good behavior and increase attraction and retention.  Consider offering additional pay or an employee bonus. Employees are more likely to apply or stay at an organization that invests in their performance.

In conclusion, adopting a systematic approach to developing an engaged workforce can yield numerous benefits for companies. By implementing a well-defined process, organizations can create a culture of employee engagement that enhances productivity, fosters loyalty, and drives innovation. This process involves understanding employees’ unique needs and aspirations, aligning goals and values, providing regular feedback and recognition, promoting professional growth opportunities, and fostering a positive work environment. Investing in employee engagement improves job satisfaction and retention rates and directly impacts the company’s bottom line, as engaged employees are more committed, motivated, and willing to go the extra mile. By prioritizing the development of an engaged workforce, companies can position themselves for long-term success in today’s competitive business landscape.

10/15/2022

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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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Feb 1 2022
High-Impact Compensation Strategies to Include in your 2022 Plan

High-Impact Compensation Strategies for 2022

Is 2022 the best year to reset your compensation program? Absolutely.  

To prepare you for this year, Blue Whale Compensation has compiled a series of measures that can help companies best manage their labor and talent needs. 

We are living through a historical shift in the workplace with rising wages and inflation. At no other time in recent history has compensation taken a front seat as a means that companies can use to retain, engage, and attract new talent. A compensation strategy, however, should not be confused with solely giving employees aggressive increases. In fact, unwarranted increases with no other plan are likely to make issues worse.

The plan needs to be based on a comprehensive analysis of budgets, labor needs, current talent needs, future talent needs, and basic compensation planning.

A Market Analysis is a Must

Carefully examine market levels and set appropriate salary benchmarks. Based on that information, consider market adjustments. Market adjustments should generally be no higher than 2%. If more severe market adjustments are needed, consider another round of market adjustment increases in 12 months. When setting the market, consider that 2022 is not the year to be noncompetitive. Along with inflation eating away any substantial wage gains, recent surveys indicate that most employers a setting salary increases about their 2022 projections; in addition, about half of companies are actively implementing market adjustments to employees who are under competitive market pay. 

Merit-Base and Market-Driven Increases based on Performance

If you have ranges and midpoints, combine your performance management information with an employee’s market position. By using a merit-driven grid, you can justify larger, above-average increases to high-performing, underpaid employees.  Conversely, the matrix helps you develop a policy to slow down salaries that are way above market midpoints.

Download Matrix

Identify Employee at Risks

Mine your employee data and identify the employee population that is most at risk of leaving your company. Use your compa-ratios! Employees with the lowest compa-ratios are twice as likely to be looking for employment. Review your employee population via existing interview data: what departments, units, or types of employees are leaving at a faster pace and what trends can you derive from their exit interviews?  

Closely examine your labor stats and compare them to specific benchmarks. For example, voluntary turnover rates are trending between 10% and 17%. Are your higher or lower? Employee tenure is another key barometer to measure at-risk groups. Employees who have more than four years with a company as twice as likely to stay with the company for another three to four years. Employees who have less than two years are twice as likely to be looking for another job. In addition to critical stats, check data from your employee opinion or engagement surveys. They often contain valuable information that can help you identify at-risk employee populations.  

Implement a Basic Compensation Plan with Guidelines, Grades, and Ranges

The rapid movement in wages that are likely to be experienced in 2022 most likely will subside in 2023. It is, therefore, very important that beyond immediate increases, you carefully look ahead and implement basic compensation management guidelines. This includes grades based on job leveling; ranges reflecting reasonable hiring salaries; policies addressing promotions, demotions; and most importantly, a basic outline of your company’s compensation philosophy.

View Sample Comp Philosophy

Upgrade Your Performance Management System 

Over the last few years, AI-driven solutions have come into the marketplace with innovative technologies that have simplified the often complex and disliked world of performance management tools. Many tools exist to offset the great challenges companies have with their existing program. Most app-based solutions tend to be affordable, flexible, and easy to deploy.   

Recalibrate Your Pension Vesting Provisions and Enhanced Your Time-Off Policies

As employee tenure decreases, employers may want to re-think the existing model of pension benefits vs. time-off benefits. For example, most employers allow an employee to join their 401k plan in less than six months. Less than 30% wait a full year to allow them to join. If your retention and data show a pattern of employees decreasing tenure, then, employers may want to extend the waiting time before an employee signs and increase the vesting from three to five years. This needs careful consideration as 401K is a premium recruiting vehicle and care should be exercised to dilute the recruiting value that your current company offers. However, for companies that shift pension costs, to additional flexible some of the cost to enhanced time-off policies.

Consider Bonus for High Paid Employees, Not Increases

For high-paying employees versus additional salary, examine the market, and follow the following strategic budget: For employees over the midpoint, offer them a one-time bonus; for employees under the midpoint, add to their base.  Over time, this strategy will keep your costs even with the market and you can target at-risk employees, and perhaps even keep them. 

Selling your Plan

The biggest challenge in resetting your compensation program should not be illustrating the company can be more productive, efficient, and ahead of the curb in the long run. The biggest challenge is bringing the organization the information they need – from your C level to your middle management, and all the way to employees. This requires a significant public relations effort – one that cultivates the needs of the organization not only for the immediate future but for long-term success. 

Is Job Hopping Here to Stay?

It used to be that most employees would stay in a position on average of four to six years. That is no longer the case. The fact is that most employees are no longer considering long-term employment with your company.  

The leaders of the job-hopping movement are, to no surprise, millennials. They are now aptly called the “job-hopping generation” because they display a significantly higher willingness to switch careers than previous generations. The long-tenured career employee is essentially over.   

Employee mobility with employment options, and the opportunity to get more money with the next move, have resulted in decreasing employee tenure. Social media is saturated with narratives about getting a 20% increase by going to a new company. The fact is that strategy works for people. In previous years, job jumping was frowned on – now, that tactic is part of the challenges that employers must seriously account for.  

Given that employees are less likely to stay with your company for a long period, you need to develop shorter and more impactful training procedures to make up for time lost in the hiring process. Shorter employment also makes companies question their pension and retirement benefits. Instead of benefit and tenure keeping in immediately waiting 6 to 12 months longer and increasing vesting provisions from 3 to five years. 

Hire Part-Time Employees to Fill the Labor Gap

One driver of the current resignation wave is that employees are looking to shift their work schedule and work with more flexible work type arrangements. Often, even a full-time WFH arrangement is not enough. Employees are also looking for a shorter, flexible work schedule.  Part-time employment may be an option for them and many employers.  

Beyond the cost economics – which may help the employer – part-time employees often have the experience and the technical agility that employers often require from new employees.  Given the new dynamics in work arrangements, part-time employees, when properly structured, can add the stability that the current environment lacks.  Managers will be key. Managers can resist the perception that part-time employees are supplemental and not worthy of long-term investment in terms of training to development. HR must bring considerable company culture efforts to show how part-time employees can be more than a short-term for the organization. Employees now place a high value on the ability to control their work/life balance, so they are likely to appreciate the opportunity to earn income while being able to accommodate to their lifestyle.  

High Demand for Interns Expected in 2022

Intern season is coming up! A well-managed internship program is a great way to identify potential long-term talent against the wave of resignations. If you have been on the fence about hiring interns, this may be the year for you to jump into developing an internship program.  A properly vetted internship program offers a variety of solutions that can quickly fill the labor gaps most employers are experiencing. 

Hiring interns is a great way to get specific skill-based labor that can support critical key functions and relieve areas with entry-level support. A good program should also be able to help you identify potential long-term talent. If you target and recruit specific skill sets, you may be able to bring some support to key projects that might be stuck due to a lack of resources.  

Most of the jobs that are being lost, besides retail and health, are office administrative classifications where minimum wages have not kept up with inflation. That means interns and part-time employees could provide much-needed relief during the late spring and summer months. 

February, 2022

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