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November 02, 2004
Firms Revising Variable Pay Plans
Nearly half of all employers with variable pay plans have revised them in the past year as companies continue to shift from fixed pay to variable pay, according to a survey by Watson Wyatt, a consulting firm.

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Of the changes made, the most common was revising the performance measures on which bonuses are based (68 percent), followed by increasing goals employees are expected to achieve to earn an award (46 percent). More than one out of four (27 percent) increased the size of target awards employees receive for achieving goals.

"Employers are trying to better link variable pay programs with organizational and individual performance," says Laura Sejen, director of strategic rewards consulting at Watson Wyatt. "Clearly, employers are raising the bar for employees. As variable pay becomes more prominent, companies are realizing they need to carefully distinguish reward allocations to recognize outstanding employee performance if they are going to attract and retain top talent."

According to the survey, 82 percent of companies now have a variable pay program for non-executive employees, and 49 percent of organizations have a plan for all employees. In addition, among respondents planning future changes to their reward programs, 43 percent plan to put greater emphasis on variable pay.

About half of the employers with long-term incentive programs also made changes to these plans within the past 12 months. Of those that made changes, 50 percent did so in anticipation of the new accounting rules surrounding the expensing of stock options. Among the changes made, the most popular were decreasing eligibility (46 percent) and changing measures for award determination (35 percent).

A total of 242 organizations participated in the survey.

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