Page 362 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

348 The Complete Guide to Executive Compensation

large organizations. When used it typically results in fewer staff jobs being eligible for
bonuses (than when using salary or job grade), thus making it more difficult to move
individuals internally.

Salary. Using salary to identify eligibility is much simpler, once the appropriate salary level is
identified; however, it must be adjusted annually because short-term incentives are typically
expressed as a percentage of salary.
Job Grade. The use of job grade to determine short-term incentive eligibility is probably the
most common approach among larger corporations. The rationale is simple: the value of the
job to the organization has already been determined when each job was placed in a job grade
(and given a minimum and maximum range). The approach is superior to use of salary in
that it relates to the job, not to the person’s earnings. However, it does place pressure on the
compensation program to upgrade positions into the eligible group. It can also cause admin-
istrative problems since discounting salary to accommodate a bonus can create a situation
where the maximum salary for the first bonus-eligible grade may be less than the grade
immediately below it, as shown in Figure 7-1.

$

Bonus Ranges

Salary Ranges

Job Grades
Figure 7-1. Salary and bonus ranges