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I would view the removal of my variable pay (bonus), the same as a cut in my base rate of pay; and start looking for another job, immediately.

Cutting back on what was a well-designed incentive plan would establish a level of mistrust from which the employer could probably never recover. As Ann Bares writes they must pay out in good times and not in bad times. The other commentator reflects what will happen with all of the employer's previously valued employees.


I can't argue with your logic. Who wants to work for an employer who renegs on the bonus plan? Not exactly a trust builder.


Agreed. Hopefully these employers are thinking through the implications of breaking that trust. Or the plans were not well-designed to begin with. But I don't think that fact - assuming it is true - will go very far in mitigating the mistrust that follows taking a hatchet to the plan.

Thanks - both - for sharing your thoughts here!

Your contention that 39% of companies have "discretionary" incentive plans is patently absurd. The companies that Towers Perrin surveyed are all part of the Fortune 500. I would estimate that at least 85% of these companies have formal, metric-based annual incentives. Not sure why the author of the article doesn't realize that.

Due to the timing of the survey, many of the companies were hopeful that 4th quarter performance might recover. If this survey were conducted in early January, there would be more clarity around payout plans. Nonetheless, my prediction is that at least 25% of companies that do not meet the minimum performance requirements in their annual incentive plans will still make bonus payouts. They are afraid of losing top performers. They should however, not make payouts from these plans, and instead provide special retention awards (of stock or cash) for their top performers - those top 25% or so employees that they believe they can't afford to lose.

Mr. Crystal:

I appreciate your taking the time to read and comment on the blog.

To be clear, it was not my intent to contend that 39% of the companies surveyed by Towers Perrin have discretionary incentive plans. It was not even my intent to contend that I am correctly interpreting the data (I think I attempted to make this point a couple of times). My intent was only to call attention to a finding that surprised me and to ask questions about what might be taking place in these situations and why.

To the extent that this data simply represents the fact that plans are anticipated to pay out at lower levels due to financial and operating performance, I would not challenge the logic. Your prediction that some organizations will step out and make payouts to top performers, regardless and outside of plan results, in order to retain these performers, also makes sense.

I don't know that we are in disagreement here, but inarguably you have the greater experience and information to have a strong sense of what lies beneath these statistics - and I am glad you took the time to share your thoughts here.

Ann -

Your points were clear to me, so don't sweat it. Here's another thought - if 25% of companies with annual bonus plans that don't make the numbers are still making payouts, that means the essence of the plan is that it can be discretionary in nature...

Which is one of the big points you raised. You can have an annual plan, but if it's discretionary in nature, people know that it's random. Not a great design...

That said, I don't blame companies for making discretionary payouts on their annual plans to keep talent stable. But that makes it discretionary, and that's why companies who have a history of doing that would feel the need to eliminate the "annual bonus plan" all together...

Because the people will expect a payout regardless of the results...



Thanks for clarifying my points better than I could have. You raise a good issue regarding the double-edged sword nature of making discretionary payouts in a year like this one.

Also, while the particular data I chose to feature from Towers Perrin does - as Bud Crystal points out - feature Fortune 500 companies, the point I hoped to make and the questions I meant to raise here are broader ones. Most of us work in and serve companies that are not in the Fortune 500, and the landscape there is different and more varied. My experience would suggest that the lure of discretionary incentive plans is stronger among smaller, privately-held, and fast-growing companies.

At any rate - good discussion on all counts. Thanks!

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About The Author

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    Compensation consultant Ann Bares is the Managing Partner of Altura Consulting Group. Ann has more than 20 years of experience consulting with organizations in the areas of compensation and performance management.

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