Stay Bonuses: No Longer Reserved for Top Execs
January 7, 1999
Dublin, OhioThe company is up for sale. Should you be worried? Not necessarily, according to a survey released today by N. E. Fried and Associates, Inc., a Dublin, Ohio based compensation consulting firm. Stay bonuses are common vehicles used to retain top managers during mergers, acquisitions, and divestitures. However, Frieds current survey discovered three new trends. First, stay bonuses are being offered to lower-tier management, professional, and administrative employees more frequently. Information technology employees are the most recent recipients of these awards, particularly those working on special sunset projects, such as Y2K or SAP.
Second, attractive stock options or sizeable restricted stock grants are included with a cash award as part of the package. Third, performance is being tied directly to the size of the award.
"The value of the reward depends on the nature of the deal, the criticality of the employee, and organizational level of the position. Companies typically identify key players and put a price tag on what it's worth to keep them around until the business is sold or the project is completed. Retaining critical administrative or technical employees creates an additional challenge," says Fried. "These employees are typically short-service and have highly marketable skill sets. Thus, classic length-of-service severance arrangements are insufficient incentive to keep these employees from fleeing."
The survey showed varied, creative responses to this dilemma. Companies will either develop a cash stay bonus to complement severance, enhance the existing severance package, restructure the criteria for determining severance, offer stock options, or apply a combined approach whatever it takes to insure that the employee sticks around until the transaction is closed or the project is complete.
Fried warns, however, that there are special considerations when paying a predetermined bonus to any nonexempt employees included in the plan because of the probable impact on overtime. The Fair Labor Standards Act requires that additional compensation beyond the regular hourly rate be added to the annual base pay. This amount is then divided by the number of hours worked to calculate a new regular hourly rate for purposes of determining overtime. Companies that overlook this provision of the FLSA will be required to make back payments and are potentially subject to fines.
To maximize the proceeds of the sale and assure that management and other critical employees will assist in the process, companies attempt to maintain business-as-usual during negotiations. Fried's report shows how companies make it attractive for these employees to cooperate. Companies design bonus programs that ward off breaks in management continuity, avoid potential loss of customer base, and maintain profit levels.
"This is tricky," Fried points out. "The company must create an effective sweetener for employees to stay while also keeping an eye on their performance. To manage this, smart plan designers tie in performance as a factor and use it to increase or decrease the value of the reward. This creates a significant upside potential and moderate downside risk."
This 1999 update is Frieds fourth release of this report. Compensation Arrangements Designed to Hold Key People During Mergers, Acquisitions, Divestitures, Relocations, Closings, Liquidations, Bankruptcies, and Special IT Projects contains data from a variety of industries and includes 55 different retention bonus strategies. Eight of these cases address Y2K or SAP installations.
In an easy-to-read format, Fried succinctly distills many hours of discussion into a 65-page report of case study summaries that include key criteria on each plan. The report describes the business circumstances surrounding each case, the company's plan for achieving its objective, and the ultimate results. Fried concisely presents a variety of business issues that are resolved with practical and creative compensation arrangements. Detailed sample cases can be reviewed in the articles section.
This report is available for $520 plus $5 S&H from N. E. Fried; 7564 Romeria Street, Carlsbad, CA 92009 760-633-4444 (CORPORATE FEDERAL TAX ID 31-1262528.)
Fried, whose organization specializes in all forms of cash compensation programs and organizational effectiveness, also conducts leadership training. She received her doctorate from The Ohio State University in 1978 and her Certified Compensation Professional designation in 1981. She was invited to join the American Compensation Association national faculty in 1983, and has taught for state CPA societies since 1996.
Sleeper Pay Offers Sweet Dreams
January 24, 2000
Dublin, OhioMany companies continue to extend on-call pay programs to their exempt supervisory, technical, and management personnel as revealed by a report released January 24, 2000 by N. E. Fried and Associates, Inc., a national compensation consulting firm. Forty-eight percent of survey respondents reported that they paid an on-call premium (sleeper pay) for time not worked to their exempt employees. Additionally, 65 percent also paid an on-call premium to nonexempt employees according to the 2000/01 Survey of Exempt and Nonexempt On-Call Pay Policies: Job Site vs. Home-Based. The report reviews 89 cases of nonexempt and exempt on-call pay plans gathered through personal interviews with compensation professionals from organizations nationwide.
On-call pay plans typically contain two major components. The first, on-call pay premiums, which Fried terms sleeper pay, provides rewards to employees for simply being available to work outside their regular shifts. Some companies refer to this as standby pay. Employees are free to sleep or conduct personal activities during their scheduled on-call period. However, they must be reachable and able to respond within a prescribed time to receive these additional premiums.
These sleeper rewards are generally separate from the second component, call-in pay. Call-in pay consists of any moneys that employees receive when actually called to perform work, either at the job site or by telephone or computer while at home.
"These pay arrangements are common for nonexempt jobs, but the recent trend to include critical professional and management jobs seems here to stay, based on our past four surveys," said Fried, the firms president. "When we first surveyed on-call pay practices eight years ago, we found very few plans that compensated persons in exempt jobs for any type of on-call arrangements. This was not surprising because labor laws do not require companies to compensate on-call hours or hours worked over 40 per week for exempt employees.
Frieds study found that among the exempt plans many companies paid a flat rate for being on-call, while some paid hour-for-hour. Moreover, 22 percent offered additional remuneration to exempt employees who were called back to work or responded via phone or computer.
Fried's survey investigates on-call and beeper premium policies among over 80 organizations nationwide, known to have on-call pay policies. These organizations represent six broad standard industrial classifications. The study examines such plan aspects as on-call pay premiums, job-site and at-home call-in rates, mileage reimbursements, geographic or time-response restrictions, and guaranteed minimums. (See sample below.)
The report is available from N. E. Fried and Associates, Inc.; 7564 Romeria Street, Carlsbad, CA 92009 Price $395 + $7 S&H. Phone 760-633-4444 . FID# 31-1262528.
Click here for pricing information to obtain a copy of 2000/01 Survey of Exempt and Nonexempt On-call Pay Policies: Job-site vs. Home-Based (228 pages, $395 plus $7 shipping and handling)
Click here for an overview of sampling and data collection procedures, policy guidelines, and legal issues excerpted from the 2000/01 Survey of Exempt and Nonexempt On-Call Pay Policies: Job Site vs. Home-Based.