Alternative Pay Strategies

In 2000, we told subscribers to the Human Resource Knowledge Network [] about Buck Consultants' 2000 survey of compensation practices for Internet operation employees. The pendulum keeps swinging; IT professionals are not as hard to find, hire and reward as they were in the late 90s, so we can expect to see some shifts in the value of their total reward packages, but not necessarily to the elements of those packages.

  • Hiring bonuses - 69%
  • Stock options - 41%
  • Broadbanding - 22%
  • Competency-based pay - 56%
  • Gainsharing - 9%
  • Group incentives - 17%
  • Hiring bonus - 69%
  • Retention bonus - 35%
  • Skill-based pay - 20%
  • Team-based pay - 3%
  • Project completion bonus - 31%
Despite the fact that Internet operation employees represent a special labor market niche, the practices reflected above have broader business implications. New technologies, a talent-centric new economy, and a labor market that, despite recent softening, is still tight for top knowledge workers, are forcing changes in the way management and employees think about the total value proposition—and the way compensation professionals design total reward systems.

After posting the statistics and comments, above (with much more detail), a HRKN member sent us a list of questions. These questions, and our answers, follow:

Question:What is the "average" amount of a hiring bonus?

Answer:Averages are meaningless -- especially when talking about all jobs, all companies, all industries. Each company must consider its own purpose for using hiring bonuses:

  • Does it want to target the bonuses for certain jobs, defined by disciplines? by organizational level? by both?
  • Does the company have special internal equity issues that can be compounded by the use of hiring bonuses?

Also, the company must consider its ability to pay these bonuses.

Hiring bonuses can be a very effective leverage point in attracting talent. Used wisely, it can sway a candidate who is on the fence for one reason or another.

Survey data is available -- but should be used as a single factor in your decision-making process.

Question: How is it paid? On date of hire? Prior to actually starting? In portions? After completion of a specific period?

Answer: All of the above, depending on the amount, the company's ability to pay, and the degree to which the company is uncertain about the potential performance of the candidate.

Generally, hiring bonuses are paid in cash on the date of hire. Sometimes, hiring bonuses are paid in stock options, or partly in stock options. With large hiring bonuses, it isn't uncommon to defer some part of the bonus for a reasonable period of time.

All of these elements become variables in the complex game of negotiation. The key is: how much do you want to hire this person, and how much do you know about him/her. Companies should be careful to not cause unrealistic expectations, resulting in demotivation or unwanted turnover shortly thereafter.

Question: What's the feeling re: applicant's desire for a "total compensation package" that includes bonus opportunities? What ratio of bonus vs. base is considered "average"?

Answer: This question is too general. There is a universe of companies and personalities out there -- they are all different.

Question: My company has a total compensation package that includes base + bonus. The higher you are in the organization, the more your compensation is "at risk" e.g. smaller base, higher bonus opportunity. This could (in theory) bring the base pay to BELOW market as the bonus COULD BE substantial. HOWEVER, it is AT RISK, so if the bottom line suffers, so do bonuses.

Answer: How successful is your company's compensation strategy? Odds are that it is hard-pressed to answer this question. Compensation should be viewed as a strategic tool and a reflection of organizational goals and values. Has your organization addressed compensation in this manner? If it is questioning its approach to compensation, there are several ways to evaluate the total program. It would take a chapter's worth of writing to give you a full answer, and we have neither the bandwidth nor the time.

The fact is this, the only way for us to be of real help here is to work directly with the company's top decision-makers to find out their needs and objectives, moving forward from there. Facile generalizations get everyone into trouble.