Driving Growth & Talent Retention through Annual Bonus Plans

STUDY OVERVIEW

Across industry sectors, compensation leaders recognize the value of recognizing and rewarding one of the main drivers behind an organization's success in the marketplace: top performing employees. Annual bonus programs are one avenue companies use to reward employees for their contributions. However, smaller bonus pools, unfair distributions, misalignment of goals, and other obstacles can plague the integrity of the system and potentially send talent out the door.

Best Practices, LLC conducted this cross-industry study to investigate how compensation groups at leading global companies are designing and implementing annual bonus programs to reward top performers and retain talent. The study contains metrics and insights around the strategy and execution of annual bonus plans, including which employees are bonus- eligible, how plans are executed geographically, and the role of guidelines. The study also reviews factors affecting bonus percentages and average target bonus percentage across different workforce segments.

Compensation leaders can use this study to compare their organization's approach to annual bonus plans with that of leading organizations.

KEY TOPICS

• Organizational Complexity
• Eligibility Strategy
• Bonus Plan Metrics
• Global Uniformity
• Target Bonus Percentages by Job Level
• Minimum Bonus Percentage to Motivate
• Program Components
• Approach for Managers Determining Bonus Payouts

• Employees' Eligibility Criteria for Annual Bonus Program
• What Percentage of Employees are Eligible for Annual Bonus Program?
• Is Bonus Program Design and Implementation Uniformly Applied?
• Factors Influencing the Creation of Custom Annual Bonus Plans
• Approaches that Managers Use to Determine Annual Bonus Amounts
• Measures Used by Organizations to Determine Pay Out Levels
• Minimal Target Bonus Percentage that Effectively Motivates Employee
• Average Percentage of Bonus for Various Levels of Employees

• Bonus Plan Metrics: Corporate Financials & Individual Performance Affect Pay Out: To determine pay out levels, most companies in the total benchmark class and large workforce segment take into account company financial performance, individual employee performance, and business unit or division performance metrics.

• Factors Determining Target Bonus Percentage: More than 90% of respondents in the large workforce segment, and 81% of respondents in the total benchmark class, consider an employee’s job level when determining the annual target bonus percentage. Few companies use tenure or experience to determine annual target bonus percentages.
  

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