Year-End Bonuses Vary Significantly Among Design Firms

08/12/2005


Most employees who receive cash bonus payments usually compute them as a percentage of their own individual salary (e.g., “I received a 14% cash bonus!”), according to the 2005 PSMJ A/E Bonus & Benefits Survey , which reports the lowest, average and highest cash bonus—as percentage of employee salary—paid to eligible individuals. The survey yields some surprising results:

• For the overall survey, the bonus percentages ranged from a low of 2% to a high of 15% with firms providing an average of 8% bonuses.

• With respect to firm size, the large firms (staff size over 500) award the largest average (12%) as well as the largest highest (40%) bonus percentages.

• By type of service, the engineering (prime), A/E and full-service (A/E/P/I) firms report the widest variation in bonus awards from the 25th percentile to the 75th percentile. Bonus awards vary from 2% to well over 20% in these engineering firms.

Even though individuals compute their bonus as a percentage of their own individual salary, the firm should benchmark their total bonus awards compared to the other design firms competing for this same pool of employees. Many firms benchmark their total cash bonus dollars as a percentage of both gross revenue and total payroll for the year.

The median design firm spends 3.2% of gross revenue in payments to cash bonus programs. This percentage varies from 1.4% (25th percentile) to 5.7% (75th percentile). It is clear that design firms attach varying levels of importance to their cash incentive plans.

In addition, the survey revealed:

• Smaller firms (staff size less than 100) report percentages that are higher than the larger firms. It appears that smaller firms assign higher priority to awarding cash bonuses as part of their compensation program.

• Engineering (subconsultant) firms report the highest percentages and full-service (A/E/P/I) firms report the lowest percentages.

• Geographically, Midwest firms report the highest percentages and the firms operating in the Southwest report the lowest.

• Firms providing services to private-sector clients report higher percentages than do those serving government-sector clients.

Even though more than 90% of the firms report that they offer their employees a cash bonus program, the amount these firms actually pay (relative to either gross revenue or total salary) varies significantly. Although these percentages are based on the total salaries for the entire firm, one might ask what motivational value is obtained from a cash bonus program that awards payments of less than 10 percent of an individual's salary.

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