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Pandemic-Related Changes to Short-Term Incentive Plans Only Temporary

Survey on Short-Term and Long-Term Incentive Pay Practices at Public, Private, Nonprofit and Government Organizations

July 21, 2021

Scottsdale, Ariz. — Changes to short-term incentives (STIs) prompted by the global pandemic/economy are largely temporary, and some organizations cite the pandemic as the reason for modifying long-term incentives (LTIs). These findings are captured in the “2021 Incentive Pay Practices Study” of publicly traded, privately held, nonprofit, and government organizations conducted by WorldatWork in partnership with Compensation Advisory Partners (CAP). WorldatWork has been conducting incentive pay surveys since 2007 with CAP (via acquisition of Vivient Consulting). The four-part survey provides a sweeping overview of approaches to incentive pay, including types of STI plans; annual incentive plan (AIP) measures, eligibility, targets, and payout frequency; long-term incentive (LTI) prevalence; incentive plan budgets (actual and estimated); and more.



Sample Findings


Publicly Traded Companies

  • 34% of public companies added or modified their STI plans for 2021 with 26% of the changes due to the global pandemic/economy, and of those changes, 83% are temporary.
  • 92% of public companies grant LTIs on an annual basis, and 66% vest LTI awards over three years.
  • 13% of public companies identify diversity, equity and inclusion (DEI) initiatives as one of their Environmental, Social, Governance (ESG) STI perfrmance measures to determine AIP payouts, in addition to financial, individual, and operational performance.

Privately Held Companies

  • 37% of privately held companies added or modified their STI plans for 2021 with 29% of the changes due to the global pandemic/economy, and of those changes, 82% are temporary.
  • Use of LTIs is down at private companies: 51% in 2021, down from norms in the low 60% range since 2013.

Nonprofits

  • Short-term incentive prevalence at nonprofits increased in 2021 to 82%, the highest level reported in this survey’s history.
  • Nonprofits, including large institutions, place less emphasis on profitability performance measures than for-profits, 46% compared to 72% (publicly traded companies) and 74% (private companies).
  • About one-fifth (18%) of nonprofits have LTIs, compared to 94% of publicly traded companies and 51% of private companies.

Government Organizations

  • STI use at government organizations reached 58% in 2021, up from 44% in 2019.
  • Government organizations that offer LTIs (10%) do so through nonqualified deferred compensation programs.

“It’s a white-hot labor market, and employers are struggling to find, engage and retain top-performing employees,” said Sue Holloway CCP, CECP, Director, Executive Compensation Strategy, WorldatWork. “It behooves every employer—public, private, nonprofit, and government alike—to get up to speed quickly and benchmark their incentive plans against all sectors because job candidates are gauging them to help determine their next career move.”

“We’ve done this survey since 2007, and with each iteration we’ve seen incentives become more prevalent and offered to a broader range of employees,” said Bonnie Schindler, a principal at CAP. “Organizations are spending more on this component of compensation, and we expect to see incentives continue to be emphasized into the foreseeable future to align pay with performance.”

Methodology

WorldatWork collected survey data for the four-part survey during an 18-day period starting 3/4/21. The survey report is based on 1,226 responses across the four sectors: publicly traded; privately held; nonprofit; and government organizations. The demographics of the survey sample and the respondents are similar to the WorldatWork membership as a whole. The typical WorldatWork member works at the managerial level or higher in the headquarters of a large company in North America.

About WorldatWork

WorldatWork, the Total Rewards Association, is the leading global nonprofit organization for professionals who are engaged in the critically important practice of Total Rewards. We serve those who are responsible for cultivating inspired, engaged, productive, and committed workers in effective and rewarding workplaces.

About Compensation Advisory Partners

Compensation Advisory Partners (CAP) is an independent executive compensation consulting firm with offices in New York, Los Angeles, Houston and Chicago. CAP’s consultants specialize in executive and director compensation, and related corporate governance matters, working with boards of directors and management teams to develop innovative, practical and effective solutions.

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