The Private Company Incentive Pay Practices Survey (2012) found that having a long-term incentive plan is now a prevalent practice across all private for-profit corporations (except partnerships). In spite of the challenges in terms of valuation and liquidity, long-term incentive (LTI) use has increased from 35% in 2007 to 61% in 2011.

“Private companies face unique incentive compensation challenges,” said Kerry Chou, a WorldatWork Certified Compensation Professional and practice leader. “The jump from 35% to 61% in four years was significant and reflects the need for private companies to compete for senior/executive-level talent with both private as well as publicly traded companies.”

Respondents report increased use of short-term incentive (STI) programs since 2007 as well, growing from 79% to 95%.

“On the short-term incentive side, we saw an increase in the use of individual incentives and team/unit/small group incentives,” said Bonnie Schindler, partner and co-founder at Vivient Consulting. “Spending on incentives as a percentage of operating income stayed constant overall from 2007 to 2011. This indicates that private companies are focusing their incentive dollars on specific key players with specific objectives in mind. Private companies are being smart and strategic about their compensation dollars.”

Types of short-term incentives widely used today:

• Bonuses = 88%
• Individual incentive plans = 39%
• Profit-sharing plans = 19%
• Team/unit/small group incentives = 26%

Types of long-term incentives widely used today:

• Performance awards or long-term cash plans = 52%
• Phantom stock and stock appreciations rights (SARs) = 33%
• Stock = 26%
• Restricted stock = 19%
  

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