Employer spending on performance-based bonuses for exempt workers has grown from 10.8 percent of payroll in 2008 to 12.0 percent of payroll in 2009, according to a survey of large employers by Hewitt Associates, a consulting firm. In 2009, employers also dedicated a larger percentage of their payrolls to bonuses for nonexempt employees.
Fifteen years ago, such variable pay spending accounted for approximately 5 percent to 6 percent of payroll. The survey found that employers are budgeting their variable pay bonuses at 11.8 percent of payroll for 2010.
Many employers have had to freeze or cut salaries because of the economic climate. With performance-based bonuses, however, employers can reward their high performers without their budget taking as big a hit as with pay raises across the board.
"Even in the toughest economies, companies are willing to reserve money for top-performing employees as a way to reward their performance and ensure they retain these employees after the job market rebounds," says Hewitt's Ken Abosch. "Over the past decade, we've seen companies steadily shift from a fixed pay model to one that emphasizes true performance-based awards, and we expect this trend will continue."