Study Analyzes Incentive Compensation

Approximately 88 percent of U.S. construction companies offer incentive compensation plans, according to an FMI study on the effectiveness of incentive compensation. Of those companies implementing incentive-based pay, only 21 percent consider it to be very effective.

Slightly more than half of respondents consider their incentive compensation programs to be somewhat effective and only 5 percent of respondents consider their programs to be ineffective.

Factors contributing to the effectiveness of such plans range from arbitrary pay versus market value, employee empowerment, communication and transparency, and discretionary versus structured programs, among others.

A major problem affecting effectiveness is the 75 percent of contractors who offer discretionary incentives. Survey respondents indicated that an open environment that promotes awareness of incentive plans would improve efficiency.

Other findings from the study include:

  • Larger organizations are more likely to offer incentive programs.
  • Of the companies with incentive pay structures, 57.1 percent saw increased profits.
  • 7.3 percent of respondents reported significant increases in employee retention.
  • 6.8 percent of firms saw return on investment increase significantly.

Read the complete report (PDF).