Survey Scenario - Cash Incentive Examples
Cash Incentive Participation by Job Level
Below we're taking a look at the cash incentive participation by job level at a sample organization for the U.S., U.K. and India pulled from the Radford Global Technology Survey. Data shows job level is a great predictor of the level of participation and the likelihood of receiving a bonus. The higher up you go in the organization, the more likely a bonus will be paid.
| Job Level |
Employee Participation |
| U.S. |
U.K. |
India |
| Eligible |
Receipt |
Eligible |
Receipt |
Eligible |
Receipt |
| Executive |
97% |
80% |
97% |
85% |
97% |
60% |
| Director (M5) |
95% |
80% |
95% |
75% |
95% |
60% |
| Manager (M3) |
85% |
70% |
95% |
65% |
95% |
50% |
| Senior Individual Contributor (P5) |
80% |
65% |
95% |
65% |
95% |
35% |
| Individual Contributor (P3) |
75% |
60% |
75% |
50% |
90% |
25% |
| Support |
60% |
45% |
60% |
40% |
60% |
25% |
Source: Radford Global Technology Survey
The three parts of the world shown here show that eligibility is tied to job level, and is consistent among all countries. But eligibility does not mean the same in terms of the receipt rate in every country. In India, for example, eligibility is higher than the U.S. for some jobs, but receipt is less likely. That's why it’s important to look at the receipt rate for a measure of what people are actually doing. It’s also important to note that practices can vary by country. That’s why it’s important to look at the practices in each market where your organization has operations, and not just take the practices of one country and apply them blindly in other markets.
Metrics in Bonus Plan Performance Measures
Not only does the rate of participation vary by job, but the metrics used to measure performance vary as well. The following chart features data from a Radford Practices Survey, and shows how differently company and individual performance can factor into our judgment of the performance or the funding of the plans.
| Performance Metric |
CEO |
Executive |
Manager |
Individual |
| Corporate |
76% |
60% |
41% |
40% |
| Unit/Dept./Team |
9% |
18% |
23% |
20% |
| Individual |
15% |
22% |
36% |
40% |
Source: Radford US Practices Report
Here we see that for CEOs, corporate performance is more than three-quarters of the metrics being used to judge performance; while for individuals, generally a 40% is put at the individual performance level where some component of company or unit performance is important to judge. Higher job levels generally focus attention on company performance, whereas lower levels increase the percentage of focus on the individual.
Cash Incentive Example
If we put these terms and concepts together in a picture, it will resemble the image below, which reflects the combination of a threshold and a cap. This particular plan doesn’t offer any reward until you get to 70% performance achievement along the x-axis, and then jumps to paying 100% of the target at 100% performance and 200% of the target paid at 130% performance achieved with a cap above that level. With this particular plan design, we see a 3.33% of the target award added to the pot for each 1% of performance above that threshold level with a maximum payment of twice the target.
70-130 Plan (70 threshold/130 cap)
After the results of the company’s performance are known and the money is available, you will need to decide how much the individuals will receive. In a growing number of cases, that’s not just reflective of how much the plan pays, but determining if everyone on the plan performed equally well. If the answer is no, it’s appropriate to use some individual modifier or team performance measure to distribute the money.
US Target and Actual Incentive Received
Let’s turn now to how much money individual people will receive. From the chart below, with U.S. target and actual incentives received for management and professional jobs by level, we can glean a few interesting insights.
| Category |
Average Bonus as Percent of Base Salary |
| Level 6 |
Level 5 |
Level 4 |
Level 3 |
Level 2 |
Level 1 |
| Management |
|
|
|
|
|
|
| Last Year Target |
29% |
23% |
16% |
13% |
10% |
8% |
| Last Year Actual |
30% |
22% |
16% |
12% |
9% |
8% |
| Current Year Target |
29% |
23% |
16% |
13% |
10% |
9% |
| Professional |
|
|
|
|
|
|
| Last Year Target |
21% |
14% |
11% |
9% |
8% |
7% |
| Last Year Actual |
19% |
13% |
10% |
9% |
7% |
7% |
| Current Year Target |
20% |
14% |
11% |
9% |
8% |
7% |
Source: Radford Global Technology Survey, average undiluted actual incentives paid
First, the bonuses are typically larger as a percent of salary at higher job levels. More pay is at risk and more potential upside exists at higher levels. Additionally, bonus targets don’t seem to change much from year to year. Over the last several years, the bonus targets by level have been relatively stable, so actual bonus rewards will reflect the actual performance of companies and in plan years, some companies have bad years or good years, so we’ll see fluctuation in the actual data much more than in the target data.
How Incentives Connect With Performance Management
All of the examples mentioned above tie into, and play a role in, performance management. Whether you are using performance as justification for a salary increase or as documentation supporting a promotion recommendation, knowing what good and great performance looks like is critical. In addition to determining reward size, quantifying and defining goals and measuring achievements helps employees identify areas for improvement.
Performance management contributes to incentive plan award design and delivery, even if a company has moved away from traditional individual performance ratings. Overall organization or group performance can help determine the amount of money to be distributed as a whole. Team and individual contribution can influence where (or to whom) money is directed. Manager insights and discretion can be applied (while remaining in budget) as a factor when determining how individual bonus awards are computed and paid out.