More Firms Setting Bonus Criteria

February 25, 2002 ( - Corporate incentive or bonus plans look very much alike from company to company, a new survey finds.

The 2001 Towers Perrin Annual Incentive Plan Design Survey found that 62% of companies rely on three or more measures to calculate a bonus payment:

  • just over a third used earnings per share,
  • a quarter of the sample used revenue measures,
  • slightly less used net income,
  • while 14% used earnings before interest and taxes

More than half the companies adopt corporate nonfinancial measures or individual performance measures to determine awards.

The most frequently used corporate nonfinancial measures include:

  • customer satisfaction,
  • employee satisfaction,
  • quality, and
  • new product development

Nearly 70% of respondents said that they use a single criterion to determine bonus eligibility, with position in the company cited most frequently by 44%, followed by salary grade at 38%.

More than half the companies use the cost of capital as a bonus criterion.

The sample comprised 237 companies.