Deloitte recently released a survey about how decreased earnings and falling stock prices are eating into companies’ annual incentive and long-term incentive plans.
 
This at a time when it’s more important than ever to make your employees feel valued and motivated.
 
The survey found that 59% expect their annual incentive plans to pay out below target, while 11% believed they would be no pay out at all. And among those companies offering stock options, 63% report that all or most of their stock options granted within the past five years are currently underwater.”(That is, the exercise price is above the current stock price.)
 
Among the companies that have implemented or plan to implement retention programs, 33% will create a stand-alone program for the executive and employee groups these companies are most concerned about keeping. About one-fourth will modify the short or long-term incentive plans to improve the value to executives/employees. The majority of respondents do not plan to change their annual incentive plans midstream (78%). However, respondents indicated that changes will be coming in 2009 to help reassure employees that their bonus opportunity is attainable and has a realistic possibility of payment. 
 
For example, over one-half of companies are planning to adjust next year’s annual incentive plans due to current economic conditions, including one-third of companies that will modify the performance targets while keeping the same performance measures. Another 14% will actually change the performance measures, such as including more strategic, operational or individual goals. Similarly, a noticeable number of companies with performance plans (19%) will modify the performance targets for upcoming plan cycles.
 
Deloitte says that employers should take the opportunity to “channel employees’ concern into positive action. Incentive programs are a very effective tool for focusing the work force on key initiatives to position the company for future success when this market turns around.”
 
The survey uncovered numerous other retention strategies being used by companies to improve employees’financial picture and work experience, including:

• 22% will create a stand-alone discretionary/bonus pool for 2008
• 18% plan to create a stand-alone longer term incentive plan
• 14% have adopted or changed their severance plan in response to current economic conditions
• 59% are considering implementing or expanding flexible work schedules, telecommuting (46%), compressed work weeks (34%), part-time work (26%) and/or subsidies to help defray commuting costs (10%)

A copy of the report can be found here.