For staff workers in critical areas such as credit, documentation, funding, collections and asset management, the bonuses should be at target ranges, based on most organizations overachieving on targeted results. At the recent Equipment Leasing and Finance Association conference in Orlando, the sentiment was clearly that these were good times for all, with the lowest delinquency and write-off numbers in recent history. Couple this with continued low cost of funds and continued efficiency from headcount austerity, it all adds up to generally good financial results for the masses. This is the norm for 2013 as we speak with various leaders in the market. Given all of this, bonuses should be reflective of the overwhelmingly positive results going on, assuming your firm is realizing the same types of success that appears broadly across the industry.
In the leadership area, for Vice President and Director level roles, bonuses should also approach targets with supporting rationale for overachievement of bonus targets. What is the norm for these types of roles? We see a great divide in the annual bonus structures. Some firms provide typical 25% to 40% bonus targets based on three factors we see used rather broadly. These factors include 1) individual performance, 2) business unit performance and 3) overall company performance. For some firms overachievement in bonus payments is not part of the compensation plan.
On the other hand, we see another segment of companies providing senior leadership with leveraged variable compensation plans. For example, a target bonus could be 40% of base salary for a leader but based on the basket of factors, it’s possible to earn 125% to 200% of the target bonus. In good times, these types of plans should pay off nicely, but the flip side of these plans is faster declines and lower payouts in the difficult markets.
The other component of leadership compensation is long term incentives. We see these being reintroduced back into the rank and file of leadership. Retention is back on the top of the list of HR risks and long-term equity plans provide a hedge against departures. These incentives have moved from stock options to restricted stock grants with forward vesting for many institutional players with public stock.
At the top of the corporate ladder, for the C-Suite leaders, we are expecting good to great bonus payouts and continued growth in long-term plans. Result driven bonuses should bear fruit for successful leaders.
In the sales and business development area, this could be more of a mixed bag. While profits and portfolio results are solid, we do see some challenges in maintaining aggressive volume and growth targets for 2013. For example, we have seen organizations seeking 25% to 35% top line originations growth in their annual plans. What happens when success is achieved but growth is only 20%, which is still solid growth, but below target? How will parent organizations look at good, but not great, growth results for sales and business segment leaders?
So, the big question: Do you stay or do you go? Is now the time to test the free agent markets? Does staying mean you maintain the security of moderate cost of living increases or do you venture out and interview for new opportunities where 15% to 25% pay increases for making a move are becoming the new norm for changing jobs?
Conclusion
Compensation is a hotly contested topic and certainly very important to companies and employees alike. For every argument, there’s a counter-argument. This year’s bonus season will certainly create interesting conversation, controversy and opportunity for employees and companies alike.
While financial incentives are important, just like LeBron James and his decision to jump ship to Miami, employees want to win and feel like they can succeed. Compensation is part of the formula, but not the only part.
In the end, whether you decide to take your talents to your own virtual South Beach or decide to take a healthy bonus and increase, and actually vacation in South Beach, the times are good for both scenarios.