I have experience with some financial incentives based on my experiences in the corporate environment, and I’ve been curious about the ones I don’t have direct experience with, so I wanted to take this as an opportunity to research my knowledge gap. I’m most interested in how prevalent the different incentives are, what they are, and what (if any) advantages the incentive has for the corporation itself. Money is how a corporation shows respect, since the acquisition of money is the primary reason and sole motivating force of most companies.
Different Financial Incentives
| Incentive | Description | Prevalence | Corporate Advantage (if any) |
|---|---|---|---|
| Performance Bonuses (Quarterly or Annual) | Bonuses that are based on prearranged criteria that could include corporate-wide or specific organizational goals. These are usually relatively moderate to large sums that are a specific percentage of annual compensation (between 1% and 15%). | Very Common | Instead of a fixed overhead cost, it’s variable overhead, which scales with EBITDA |
| Spot Bonuses | Bonuses delivered ‘on the spot,’ usually around a significant accomplishment. Relatively low in dollar value (between $5 and $1500 in my experience). | Moderately Common | Not really any, just reinforces good behavior or compensates for something challenging to an employee. |
| Profit Sharing | Distribution of a percentage of net operating profits to employees, either in cash or directly to their retirement. | Moderately Common | Alignment across the employee base toward the bottom line revenue. |
| Gainsharing | Payouts based on cost reduction initiatives. | Uncommon | An ‘everybody wins’ when costs are reduced approach. |
| Restricted Stock Units (RSUs) | Grants of stock that are in a ‘restricted’ status until vesting. Usually 25% per year over 4 years. | Very Common | Considered to be a high employee retainer with no hit to cash. |
| Performance Stock Units (PSUs) | Stock grants are based on performance/goal-based targets. | Very Common | Aligns shareholder interests with executive execution. |
| Stock Options | Contracts granting the employee the right to buy shares at a fixed strike price after vesting, generating value only if the share price climbs. | Very Common in Startups Becoming Uncommon in Large Corporations | No cash loss, but it can be of significant value to employees. |
| Phantom Stock / SARs | Simulated stocks that behave like stock but aren’t actually stock. | Common in family-owned companies | Allows for employee/leadership compensation without the owners losing any level of company control. |
| ESPPs | The company allows employees to purchase stock at a discount (10-15%). | Common | Allows for employees to purchase stock and procure a sense of ownership at low cost to the company. |
| 401k Retirement Matching | The company helps subsidize the employee retirement accounts up to a certain percentage of their annual salary. | Near Universal | Tax deductible for the employer. |
| HSAs/HRAs | Corporate-sponsored tax-advantaged health account investment for employees to help with health care costs. | Very Common | Lowers corporate premium costs |
| Tuition Reimbursement | Corporate matching or outright covering payment of approved employee education costs. | Very Common | Tax-deductible skill improvement of employees, company gets a write-off of up to 5k |