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Incidental Bonuses and Alternative Rewards Are on the Rise

A growing number of employers are providing referral, sign-on, spot and retention bonuses

July 26, 2016 | Stephen Miller, CEBS

A group of business people shaking hands at a meeting.

The use of referral, sign-on, spot and retention bonus programs continues to rise as organizations seek forms of cash compensation beyond base pay to reward employees. Sometimes called incidental or supplemental bonuses, these discretionary or incident-based rewards differ from variable-pay incentive bonus programs with periodic payouts that are typically paid annually or quarterly.

Other types of so-called alternative rewards, including greater career development opportunities, are also becoming more prevalent, new research shows.

Incidental Bonuses

Bonus Programs and Practices, a July survey report from WorldatWork, an association of total rewards professionals, reveals a modest increase between 2014 and 2016 in organizations providing incidental bonuses.

Bonus Type	2010	2014	2016
Referral	60%	74%	76%
Sign-on	54%	63%	65%
Spot	43%	60%	61%
Retention	25%	51%	55%

Source: WorldatWork

In addition, more than 60 percent of respondents—WorldatWork members at mostly large North American companies—indicated that such programs positively affect employee engagement, motivation and satisfaction.

For the purposes of the survey, each type of bonus was defined as follows:

Referral bonus—a cash award paid to a current employee for referring a successfully hired job applicant.
Sign-on bonus—a cash bonus given at the beginning of a service period, usually for accepting an employment offer.
Spot bonus—a type of informal recognition that is delivered in cash, spontaneously or "on-the-spot."
Retention bonus—a cash award typically tied to length of service or some other milestone.

"Organizations are increasingly finding additional ways to compensate their employees as merit budgets continue to remain stagnant," said Rose Stanley, senior practice leader at WorldatWork. "We have seen a big increase in organizations using all four [incidental] bonus programs as needed compared to 2010 when the majority of organizations were only using one program. As merit budgets remain flat, employers aren't standing still and doing nothing in regards to compensation. They are using bonus options as needed to recruit and retain top talent."

Other highlights from the survey, which closed on April 1 with 726 responses, include:

32 percent of organizations use all four types of incidental bonuses, while 10 percent of organizations have no such programs in place.
While many organizations do not budget for bonus programs (particularly sign-on and retention bonuses), 55 percent of companies do budget for their spot bonus programs, and 44 percent budget for referral bonuses.
Sign-on and retention bonuses are least prevalent among small organizations (fewer than 100 employees) and most prevalent among larger organizations (greater than 20,000 employees).

Other Alternative Rewards

Employers also are turning to other ways of rewarding employees above and beyond base salaries, according to new research by Korn Ferry Hay Group.

The pay consultancy's Alternative Employee Rewards study analyzed data from 242 U.S. medium- to large-size organizations, primarily from the HR function. Data was gathered in February.

Nine in 10 organizations (90 percent) use four or more alternative methods of rewarding employees, such as spot cash bonuses, access to career development or training programs, additional paid time off, and other perks.

Over the next year, the vast majority of organizations (71 percent) plan to increase their use of these alternative rewards, the survey found.

(click on graphic to view large version)

Similar to WorldatWork's findings, Korn Ferry Hay Group's results indicate that spot cash bonuses will see greater use below the executive level, predicted to increase at more than 46 percent of companies across both manager/professional and clerical/skilled trade employee levels.

"Cash rewards don't need to come in the form of traditional base salary increases or incentives," said Tom McMullen, rewards practice leader at Korn Ferry Hay Group. "Peer-recognized cash awards for 'caught in the moment' actions and results by employees are being increasingly offered in response to successful achievement of targeted objectives, such as collaboration, innovation, [and] customer or operational impact."

Another View:
SHRM's Findings on Incidental Bonuses

Compared with five years ago, more organizations are offering monetary bonus benefits such as employee referral bonuses, spot/bonus awards, sign-on bonuses for executives and nonexecutives, as well as retention bonuses for nonexecutives, according to the Society for Human Resource Management's 2016 Employee Benefits report. Based on a survey of SHRM members conducted earlier this year, the findings revealed that:

More than one-half of organizations (56 percent) offered service anniversary awards to recognize employees' tenure with the employer.
45 percent of organizations offered employee referral bonuses to encourage current employees to refer others (e.g., friends, acquaintances) to the organization. Referral bonuses can both expand the applicant pool and potentially reduce recruiting costs, and they tend to be one of the most effective recruiting strategies available to organizations.
43 percent offered spot bonuses/awards, or unscheduled bonuses for exceptional performance, an increase from 38 percent in 2012.
Sign-on bonuses have increased eight percentage points compared with 2012 for both executive-level employees (31 percent) and nonexecutive employees (23 percent). This bonus usually must be returned if the employee leaves the organization within a certain time frame, and therefore sign-on bonuses help both recruitment and retention.
Retention bonuses were offered by 16 percent of organizations to executive-level employees, and 14 percent offered them to nonexecutive employees, an increase from 10 percent in 2012. These bonuses usually reward select employees for agreeing to stay with the organization through a particular project or period of time.

Separately, a Willis Towers Watson's survey found that discretionary bonuses, generally paid for special projects or one-time achievements, for exempt employees are projected to average 5.6 percent of salary in 2017, slightly more than the 5.3 percent average bonus awarded in 2015.

Related SHRM Article:

Bonus Binge: Variable Pay Outpaces Salary, SHRM Online Compensation, August 2016