April 23, 2014
The two-component approach to delivering pay combines lump-sum bonuses, which recognize annual achievements, with base-salary increases, which recognize lasting contributions to the company. Such an approach to compensation offers the following powerful business advantages to companies:
- Reducing fixed payroll expenses.
- Reducing benefit costs.
- Supporting employee-development initiatives.
- Providing annual motivational rewards.
Many benefits are tied to the base-salary levels of employees (life insurance, disability, retirement and so on). To the extent that base-salary levels are reduced, these benefit costs also are reduced. (Companies can choose to offset the benefit reduction to employees by modifying the basis for benefits or offering larger lump-sum bonus pools.)
Personnel Journal, May 1993, Vol. 72, No. 5, p. 158.