Is Your Bonus Plan Ready for 2024’s Competitive Environment?
With 2024 underway, some company executives may think it’s too late to make changes to their incentive compensation plans. Others may not give bonuses any thought until the end of the fiscal year or when it’s time to review the compensation pool. Yet, it’s important to recognize there is middle ground when it comes to planning how you’ll offer incentive pay to your employees.
Ideally, companies will review performance-based compensation plans, document any updates, and communicate those to employees before the beginning of the compensation year. But it’s not too late to make changes. You still have time to consider critical topics and tweak plans to make sure you’re rewarding employees effectively in 2024.
Questions to ask include:
- Is it a plan at all? Or are bonuses at your organization a gift? In the absence of clear performance expectations and trackable metrics, employees grow accustomed to simply receiving a year-end bonus or feel as though they’re guessing as to how to receive bigger awards.
- Does it include the right people? Based on the type of plan and its goals, all employees might be eligible. That said, there is usually a smaller group of employees who have significant influence on company success and a mentality that is more motivated by compensatory rewards. Be sure these employees have notable incentive opportunity within the plan.
- Does it incorporate relevant and measurable performance indicators? Employees tend to be satisfied with subjective or arbitrary performance criteria only if awards are favorable (meaning higher than last year and better than the competition). Owners and executives should be asking whether they see return on investment in incentive dollars and, if they don’t, look at approaches to improve alignment between incentive awards and performance criteria that truly measure company success.
- Are potential awards competitive and fair? Fortunately, the need to be competitive on bonuses is not nearly as important as it is for base pay. However, if you are using bonuses to make up for conservative base pay or if you are in highly competitive markets, benchmarking potential awards against competitors is key. Additionally, in an environment becoming more and more transparent, be sure that employees are evaluated consistently and equitably. For example, employees with the same title should have similar opportunities for incentive awards; if they don’t, management must be able to explain the discrepancy.
- Has the plan been thoroughly communicated to employees? At FMI, we frequently find that many engineering and construction workers don’t know exactly how they are rewarded. If employees don’t understand the plan, it’s likely they’ll lose motivation.
Despite it being a month into the new year, it’s not too late to consider the questions above and take action to improve your 2024 incentive plan. Don’t let time run out and jeopardize your workforce with ineffective pay and bonus practices.
