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Bonus Plans in 2009 Reach More Employees, Offset Pay Cuts and Frozen Salaries

Golden parachutes for executives are trending downward, said compensation expert Don Delves of The Delves Group.

Golden parachutes for executives are trending downward, said compensation expert Don Delves of The Delves Group.

Executive salaries are flat, frozen or declining, but bonus pay for performance is on the rise and includes a larger group of employees, said Ken Abosch, Head of Compensation for Hewitt Associates in an interview on compensation trends with BusinessWeek.

A wider pool of bonus pay in 2009 for a larger set of employees will help to offset some of the pain of stagnant pay, Abosch told the magazine. 

While we’re seeing record-low budgeting for base salaries, we’re seeing record high budgeting for bonuses. In 2009, organizations are budgeting 12% of their payroll for bonuses on average. That’s the highest percentage we’ve seen in the 33 years that we’ve been recording this data. For 2010, the projection is close to 12%. Before 2005, companies budgeted between 9% and 10%. So the percentage has been trending up. What’s counter-intuitive is that the highest level of funding for bonuses is occurring in the heart of the recession.

We know companies this last year slowed the growth of salaries, froze them, and in some cases cut salaries. Regardless of which category a company was in, we found all of them had full funding for their bonus programs this year. That’s indicative of a shift from fixed costs to variable costs, since bonuses are not additive costs. You pay them one time and they go away.

It’s also indicative of the fact that organizations have turned to variable pay as the new pay for performance today. A lot of organizations are abandoning base salary increases as a way to incent performance.

(Image by faktoryboy via Flickr CC 3.0)

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