A big shift from wages to bonus-based wages

In incentive compensation programs, base salary is often supplemented with monthly or quarterly bonuses based on the achievement of specific goals. Twenty-eight percent of the more than 300 companies surveyed said they were adjusting incentive pay for new positions, according to a 2024 study by revenue management consulting firm Alexander Group.

This practice has long been common among salespeople and top-level professionals. But beyond an annual raise – and, for some, an annual bonus – the vast majority of the workforce earns the same amount every payday.

Nowadays, more and more companies are trying to make the most of rising salary costs by making part of their employees’ remuneration dependent on the achievement of set goals.

Employers say a new way of paying professionals, from accountants and human resources managers to marketing assistants, could boost productivity. Many outperformers say they enjoy the often high growth potential. However, some workers say they are earning less than they expected.

“There’s a total risk, but in my experience there’s more to be gained,” says Hannah Brown, 32, chief of staff at the business software company WalkMe.

Each quarter, she is entitled to a target bonus of 11% of her salary, half of which depends on the performance of her department and individual goals that she sets in advance with her boss.

Tasks related to the sales process, such as marketing and post-sales support, will most likely be incorporated into pay-for-performance plans. But some companies, like WalkMe, use short-term bonuses to shape the pay of everyone from accountants to human resources managers.

Whether an employee supports incentive-based pay often depends on how compensation is structured and disclosed. Some workers say they are upset when companies use bonuses to compensate for poor base salaries.

Bait and switch

Miriam Gershenson, 35, recently looked for a job in human resources in San Diego. She applied to a consulting firm with an offer that didn’t pay as much as the six-figure salary she was earning at her previous job in the Bay Area.

After several rounds of interviews, the recruiter presented an offer: The salary was 10% lower than what she had quoted earlier. The remainder would be a bonus based on her and the company achieving set goals.

“I felt like someone pulled the rug out from under me,” says Gershenson, who turned down the offer.

Gershenson, a recruiter herself, was no stranger to receiving commissions for hiring people, and she happily beat her previous results each month. However, she argues that if she works full-time, her base salary must be fixed, meet her income requirements and reflect her competences.

“Anything over that amount, if I deserve it, fantastic. That’s why it’s called a bonus,” he says. He says he knows friends who have started relying on quarterly bonuses but aren’t getting them. “The goals they have are just unrealistic in the context of the economy they are in.”

At WalkMe — recently acquired by SAP — most of the nearly 1,000 employees who don’t receive sales commissions are eligible for a quarterly bonus. They start with 8% of the salary, depending on the position and length of service. Half depends on company performance, the other half is based on a combination of individual and team performance. Those who achieve their performance goals can earn as much as 120% of their target bonus, while underperformers will receive at least 50%.

For Shira Shriki, a procurement manager at WalkMe, whose bonus target is 8% of her salary, recent goals have included streamlining procurement processes, creating training videos and updating company guidelines. It doesn’t hurt that he earns a higher base salary than in his previous job.

She sees the bonus — which she says she has received in full every quarter since she joined WalkMe 2.5 years ago — as an extra pot of money.

“The potential to get more is higher than in previous companies,” says Shriki, 42. What is important, he adds, is that the bonus structure is clear and achievable.

“A chance to achieve above-average results”

Brown, now head of WalkMe’s customer success team, says 11% of her compensation is variable. In previous customer-facing positions in the company, this percentage was as high as 20%. In the 30 or so quarters she worked there, she collected more than 100% of her target bonus two-thirds of the time.

“I have a chance to do better,” Brown says.

Companies that move additional roles or entire teams to such pay-for-performance plans usually do so gradually, says Mark Schopmeyer, co-founder and co-CEO of CaptivateIQ, an incentive compensation management platform for companies. They phase this in by devoting all or part of each annual raise to a variable bonus amount.

When Gong, a revenue management software company, moved its more than 60 customer success managers to a new quarterly bonus plan earlier this fiscal year, each employee had the option to transition all at once or in phases. The move ties less than a third of their total compensation largely to customer renewal rates.

“Especially with the dollar-based shift, there are more risk-averse people who really want to understand all the ramifications of putting more skin into the game,” says Simon Frey, chief client officer at Gong.

He says under the new system the entire team will be paid more than they were at this point last year.

Dan Goodman, a Boston-based employee advocate, says more and more of his clients are asking him to review job offers that include incentive pay. His advice: make sure it’s not a discretionary activity, but triggered automatically when you hit performance metrics that you have control over. And remember, the bonus can always change.

“Expect the worst,” he says. “You want to be pleasantly surprised.”

Write to Vanessa Fuhrmans at [email protected]