The big shift from salaries to bonus-based pay

In incentive pay programs, base salaries are often fleshed out with monthly or quarterly bonuses conditional on hitting certain targets. Twenty-eight percent of more than 300 companies surveyed said they were building incentive pay into new roles, according to a 2024 survey by revenue-management consulting firm Alexander Group.

The practice has long been common for salespeople and top brass. Yet apart from the yearly raise—and for some, an annual bonus—the vast majority of the workforce makes the same amount every payday.

Now, more companies are trying to get the most out of rising payroll costs by making a part of workers’ pay contingent on completing prescribed goals.

Employers say the new way to pay professionals from accountants and human-resource managers to marketing assistants can fuel greater productivity. Plenty of overachievers say they are relishing the often-rich upside potential. Yet some workers say they are making less than they bargained for.

“There’s absolutely risk, but in my experience there’s been more reward," says Hannah Brown, 32, a chief of staff at business-software company WalkMe.

She is eligible every quarter for a target bonus of 11% of her salary, half of which depends on her department’s performance and individual goals she sets with her boss ahead of time.

Jobs close to the sales process, such as marketing and after-sales support, are the most likely to be swept up into pay-for-performance plans. But some firms, such as WalkMe, are using short-term bonuses to shape pay for everyone from accountants to human-resources managers.

Whether a worker supports more incentive-based pay often comes down to how the compensation is shaped and disclosed. Some workers say they are rankled when companies use bonuses to make up for a lackluster base salary.

Bait and switch

Miriam Gershenson, 35, was recently hunting for human-resources jobs in San Diego. She applied to a consulting firm with an opening that didn’t earn quite as much as the six-figure salary she had made at her previous job in the Bay Area.

After several interview rounds, the recruiter presented the offer: The salary was 10% less than what she had been cited earlier. The remainder would be a bonus, contingent on both her and the company meeting prescribed targets.

“It felt like the rug had been pulled out from underneath me," says Gershenson, who turned down the offer.

As a former recruiter herself, Gershenson wasn’t a stranger to being paid on commission for placing people in jobs and enjoyed trying to best her previous numbers each month. But with a full-time staff position, she says her base pay has to be a constant that meets her income requirements and reflects her competency.

“Anything above that, if I earn it—fantastic. That’s why it’s called a bonus," she says. She says she knows friends who have come to depend on their quarterly bonuses but aren’t getting them. “The goals they have are just not realistic for the economy they are in."

At WalkMe—which was recently acquired by SAP—most of its nearly 1,000 employees not earning sales commissions are eligible for a quarterly bonus. They start at 8% of their salary, depending on role and seniority. Half is determined by company results, the other half is based on a mix of the individual’s performance and their team’s. Those who reach their performance goals can earn as much as 120% of the target bonus, while low performers get at least 50%.

For Shira Shriki, a WalkMe procurement manager whose target bonus represents 8% of her salary, recent goals have included streamlining procurement processes, creating training videos and updating company guidelines. It doesn’t hurt that she makes a higher base salary than she did at her old job.

She considers the bonus—which she says she has received in full every quarter since she joined WalkMe 2½ years ago—an extra pot of money.

“The potential to get more is higher than at previous companies," says Shriki, 42. What’s important, she adds, is that the bonus structure is clear and attainable.

‘Opportunity to overachieve’

Now chief of staff in WalkMe’s customer-success group, Brown says 11% of her pay is variable. In previous, customer-facing roles at the company it has been as high as 20%. In the roughly 30 quarters she has worked there, she has reaped more than 100% of her target bonus two-thirds of the time.

“I have the opportunity to overachieve," Brown says.

Companies shifting additional roles or entire teams to such pay-for-performance plans usually do it incrementally, says Mark Schopmeyer, co-founder and co-chief executive of CaptivateIQ, an incentive-pay management platform for companies. They phase it in by making all or part of each annual raise a variable bonus amount.

When Gong, a revenue-management software company, moved its more than 60 customer-success managers to a new quarterly bonus plan at the start of this fiscal year, it gave each staffer the option to shift at once or in phases. The move ties less than one-third of their total pay largely to customer-renewal rates.

“Especially with a change that involves dollars, there are more risk-averse people who really want to understand all the implications of putting more skin in the game," says Simon Frey, Gong’s head of customer outcomes.

Under the new system, all of the team is taking home more pay than they did at this point last year, he says.

Dan Goodman, a Boston area-based employee advocate, says more of his clients are asking him to review job offers that include incentive pay. His advice: Make sure it isn’t discretionary but automatically triggered by meeting performance metrics that are within your control. And remember, a bonus can always fluctuate.

“Expect the worst," he says. “You want to be pleasantly surprised."

Write to Vanessa Fuhrmans at Vanessa.Fuhrmans@wsj.com