--- "Chris L. Patterson" <[log in to unmask]> wrote:
> do most firms/companies include the bonus as part
> of the salary even if it is not guaranteed nor is the amount
> guaranteed each year? 

The short answer is "it depends". In general, your primary measure of
compensation is the base salary. The base salary should be what is
considered primarily when looking at comparable salaries. If a bonus is
guaranteed, I suppose some companies would argue that it needs to be
considered as part of the base. But the trending is that "bonus" pay is
"pay at risk" and is based solely upon performance to measurable goals
(and often, company or business unit performance). It should thus not
be considered as part of base, no matter what past history has been.

The trend is to pay a bonus (or "annual incentive" -- AI) based upon a
number of factors. Most companies are trying to make the AI a
differentiator for performance. People who perform at a very high level
are compensated with a greater modifier to the AI package than those
who perform at a moderate level. So let's say that you have an AI
target of 10% of base. The theory is that if you meet your goals, you
get the whole 10% AI payout. Problem is, you met your goals, but a peer
met her goals and then some, plus brought in a new revenue stream. Her
AI is also 10%. If she gets 10% for exceeding her goals and you get 10%
for meeting your goals, she's going to be somewhat cheesed. So what
companies are doing is providing modifiers to the AI based upon
available funding for AI and individual performance.

In some companies, they have a fixed pool for AI. There's an assumption
that a certain percentage of eligibles will hit their goals, so they
put so much money into the bonus pool. In some companies, if the
company has a great financial year, they will put more money into the
pool; if the company has a bad financial year, money is taken out. Then
the company draws a bell curve that allows management to recognize a
certain percentage of folks with a larger payout -- and some with less.
So your high-achieving peer may now get 150% of her 10% target, or 15%.
Perhaps you then get 50% of your 10% target or 5%. What this does is
incent folks to achieve, without breaking the bank.

Other companies have modifiers based solely on company results (this
tends to be more prevalent at higher compensation levels where folks
have the potential for greater impact upon company results). Your
target may again be 10%, but if the company has a stellar year, you may
get 110% of the 10%. You may also get 25% of the 10%. That means you
could get a message of "hey, you did a great job for us this year, so
we're setting your payout at 10%; however, the company's results stunk,
so you, like everyone else, are only getting 25% of that."

When you look at pay, you start with the base pay for the role. You
need to take into account the bonus -- as well as the historical payout
on bonus -- to get an idea of what you can expect, but I would never
look at the bonus as part of the total base compensation number if
you're comparing apples to apples. You will get paid the base. You
might get paid the bonus.

But when you look at a job, you may also want to consider some of the
other parts of total compensation. Base pay and bonus are elements of
that. In addition, you can look at things like percentage of insurance
premiums paid, stock grants and options (again, not ever part of base
unless you are contractually obligated to get them), parking, paid time
off, meals, flex time, working from home, etc. You may find that total
compensation adds up to quite a bit, and does become a point for
comparison to other offers, but you do need to consider how much you
want to put at risk.

And, as we have seen discussed numerous times, you also want to
consider intangibles like local cost of living and commute times. All
of these things add up to your "compensation" for a job -- but much of
it can end up being variable or at risk -- or subject to change based
upon the needs of the business. 

This is what I get for working for an HR consulting firm -- and letting
some of the stuff rub off on me.


Patrick Cunningham, CRM

Patrick Cunningham, CRM
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"Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety."
Benjamin Franklin, Historical Review of Pennsylvania, 1759

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