Will quarterly bonuses help retain and motivate employees? 

“That’s the way it’s always been done” is a common refrain when companies are asked to reevaluate their pay programs and policies, including the frequency of payouts under their short-term incentive plans. For example, the vast majority of US companies pay out cash-based short-term incentive awards on an annual basis to employees: executives (94%), management (89%), professionals (90%) and paraprofessionals (83%), according to Mercer’s 2022 Short-Term Incentive Plan Design Survey. Despite the overwhelming prevalence of annual payouts for short-term incentives, moving to a more frequent incentive payout cadence for broad-based plan participants, such as quarterly payouts, may help companies achieve various human capital management (HCM) and incentive plan design objectives.

More frequent payouts under short-term incentive plans may better align rewards with a company’s performance management cycle, enhance retention and engagement, and improve participants’ line of sight to critical goals. Although investors may not support more frequent payments to executives, there are potentially positive executive compensation governance implications of extending more frequent payouts to executives as well, including minimizing the need for special retention awards and creating tighter alignment of executive rewards with the investor experience.