Research Reinforces Incentive Pay’s Importance in the Rewards Offering

Incentive pay is firmly established as a rewards strategy, with short-term incentives commonly applied across organization types/sectors and long-term incentives displaying prevalence but applied by organizations to varying degrees/manners. This is according to the 2026 Incentive Pay Practices Survey, conducted by WorldatWork in conjunction with Compensation Advisory Partners (CAP), an executive compensation consulting firm.

The survey results, released on Tuesday, Oct. 6, are derived from the responses (provided between May and June) of 580 participating organizations representing four types/sectors:

• Private, for-profit (254 organizations);
• Publicly traded (196);
• Nonprofit (98); and,
• Government (32).

HR and Rewards professionals can access the results via:

• Executive summary
  • This complimentary summary, prepared by CAP, highlights key findings and sector-wide trends.
• Interactive dashboard
  • Survey participants and WorldatWork members can access an interactive, customizable dashboard to explore and analyze the survey data in greater detail. The dashboard is new this year, and data is filterable by total employees, industry, sector, corporate status and revenue.

Access a related Workspan Daily article on this subject:

• How the Incentive Pay Practices Tool Can Influence Your Plan Design

How Organizations Use Short-Term Incentives

The WorldatWork-CAP research confirmed that short-term incentives (STIs) — encompassing annual incentive plans (AIPs), spot awards, discretionary bonuses and retention bonuses — are an essential tool for corporate motivation, with almost all for-profit companies now leveraging them to drive near-term performance. Whether publicly traded or privately held, organizations utilize these programs to align employee behavior with immediate business objectives and reward high performance.

A clear majority of compensation professionals from responding organizations rated their STI programs as effective, very effective or extremely effective. This positive sentiment is led by 86% of public companies, followed closely by 72% of private companies and 62% of nonprofit organizations.

The study highlighted a direct, dual-focused relationship between STI spending and perceived effectiveness. Organizations stated they are far more willing to invest heavily in incentive programs when they see a clear return on performance. Concurrently, the data suggests the cash values of these awards must remain substantial enough to genuinely influence day-to-day employee behavior.

For public companies, this behavior-modifying expense represents a meaningful slice of the corporate pie — typically, 5% to 15% of total operating income. Given the scale of this financial commitment, HR executives emphasized the ongoing need to ensure these payouts are directly tied to the correct corporate milestones.

While various award types exist, AIPs remain the predominant form of short-term compensation across all analyzed sectors. These are employed by more than 80% of surveyed organizations, including 93% of public companies and 81% of private companies that use STIs. Among the other prominent STI forms:

• Spot awards are used by more than 40% of organizations; and,
• Discretionary bonuses and retention bonuses each are used by approximately 30%.

The results did show, though, that AIP application does vary. Namely, public companies:

• Spend slightly more (as a percentage of operating income) than private companies — a 2-percentage-point difference at the 75th, 50th and 25th percentiles; and,
• Provide much higher target opportunities (as a percentage of salary) for employees at the executive levels (see below).

How Organizations Use Long-Term Incentives

When it comes to long-term incentives (LTIs), the WorldatWork-CAP report found organizational ownership structure primarily determines its role in the rewards offering. While 95% of respondents from public companies said they use one or more LTI options (e.g., restricted stock units [RSUs], performance shares, stock options, nonqualified deferred compensation, long-term cash plans, phantom stock, stock appreciation rights), the percentage of LTI usage significantly drops for respondents from:

• Private companies (61%);
• Nonprofits (26%); and,
• Government organizations (16%).

Three reasons support public companies’ LTI prominence:

1. In general, the primary purpose of LTIs is to align employee rewards with long-term organizational goals.
2. Public companies’ main goal is to increase shareholder wealth.
3. Public entities possess readily available, liquid stock inherently tied to corporate valuation.

In comparison, non-public organizations face three obstacles when it comes to LTIs:

1. These entities lack a built-in market valuation mechanism.
2. Participants can’t easily cash out equity.
3. A dearth of publicly available peer data makes relative performance harder to measure.

The public vs. private difference also appears in how LTIs are offered. Public companies lean heavily into RSUs (offered by 90% of respondents in this category) and performance shares (74%), which are full-value share plans as opposed to appreciation-only plans such as stock options. Conversely, private companies more frequently rely on long-term cash plans (51%), which typically measure profitability goals over a rolling three-year performance period.

Similar to AIP delivery within STIs, public companies provide much higher LTI target opportunities (as a percentage of salary) for employees at the executive levels (see below).

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Compensation
• Executive Compensation
• Finance and Budgeting
• People Analytics
• Total Rewards