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December 10, 1999
Performance related compensation plans not that effective
A r
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ecent nationwide strategic compensation survey reports that although linking individual goals to the company's business goals is the primary objective of short-term incentives, 30% of those surveyed don't find that these plans are effective in improving organizational performance.

The survey, conducted by the Society for Human Resource Management (SHRM) and Arthur Andersen's Human Capital Services (HCS) practice, provides a comprehensive look at competitive practices with respect to compensation philosophies, salary structures, broadbanding, short and long-term incentives, performance management/appraisal systems and more. Information was collected from 738 diverse organizations across the US.

Additional survey findings include:

  • Most companies position their pay levels at "market" or median levels in comparison to competitors in the marketplace. However, when pay exceeds "market" levels, it is most commonly pay for top executives.
  • Seventy-seven percent of participants use formal salary structures with 61 percent of those participants having distinct/different structures for management position (66%), executive positions (31%), and technical/IT jobs (20%).
  • The majority (69%) of companies have short-term incentive (bonus) plans. Relevant reasons for having these plans is to link individual goals to business goals (77%) and to reward superior performance (63%).
  • The most common measures used for annual incentive plans are profit, revenue, individual goal attainment, and customer satisfaction.
  • Seventy four percent of public companies have long-term incentive plans. The most prevalent long-term incentives are nonqualified stock options (64%), incentive stock options (47%), and performance-based restricted stock (26%).
  • Competency assessment is valued equally with other performance measure in 41% of the companies, but in almost as many companies 37%), it is considered to be the primary driver of overall assessment.

To purchase the Strategic Compensation Survey, call the SHRMStore at 1-800-444-5006.

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