Velishchuk / iStock
Pandemic-prompted changes to short-term incentive (STI) plans are generally proving to be, well, short term.
That’s one of the findings of the “2021 Incentive Pay Practice Study” conducted by WorldatWork in partnership with Compensation Advisory Partners (CAP), an executive compensation consulting firm.
The study consists of four distinct surveys of different business organization types: publicly traded, privately held, nonprofit and government. The annual study, which was first conducted in 2007, provides data on approaches to incentive pay, including types of STI plans; annual incentive plan (AIP) measures, eligibility, thresholds, and payout frequency; long-term incentive (LTI) prevalence; and incentive plan budgets (actual and estimated).
Here’s what the 1,226 respondents in the four groups said about their STI plans during the pandemic:
- Publicly traded: 34% added or modified their STI plans for 2021 with 26% of the changes due to the global pandemic/economy. Of those changes, 83% are temporary.
- Privately held: 37% of privately held companies added or modified their STI plans for 2021 with 29% of the changes due to the global pandemic/economy. 82% are temporary.
- Nonprofits: 29% altered STIs, 58% because of the pandemic.
- Government: 22% altered STIs with the pandemic being the most frequently listed factor.
This was the first year the study asked about environmental, social and governance (ESG) initiatives’ roles in incentive plans. For example, 13% of public companies identify diversity, equity and inclusion (DEI) initiatives as one of their ESG criteria in determining incentive pay.
Numbers in those ESG areas are expected to grow, said Sue Holloway, CCP, CECP, WorldatWork director, executive compensation strategy. “It is an area we are going to watch closely as more organizations develop metrics for DEI.”
Some of the findings are in the “not surprising” category. For example, publicly traded companies have the most participation in STIs (99%) and LTIs (94%). They were followed by privately held companies (93% and 51%); nonprofits (82% and 58%); and government (58% and 10%). The 82% STI participation for nonprofits is the highest reported level in the survey’s history. Government’s 58% STI participation is up from 44% in 2019.
And nonprofits place less emphasis on profitability performance measures than for-profits — 46% compared to 72% (publicly traded companies) and 74% (private companies).
While it is difficult to draw general observations, the four surveys “provide a wealth of business type-specific information that is relevant to particular business needs,” Holloway pointed out.
However, total rewards professionals shouldn’t limit their studying of the information to their business type, she advised. “It’s a white-hot labor market, and employers are struggling to find, engage and retain top-performing employees. 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.”