WSJ Your Money Briefing - Some Companies Are Shifting Salaried Workers to Performance-Based Pay

Episode Date: October 2, 2024

Some companies are transitioning full-time employees from salaries to bonus-based pay for hitting certain targets. Wall Street Journal careers and workplace deputy bureau chief Vanessa Fuhrmans joins host J.R. Whalen to discuss which types of jobs are involved, and how performance metrics can impact workers’ pay. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Exchanges. The Goldman Sachs podcast featuring exchanges on rates, inflation, and U.S. recession risk. Exchanges on the market impact of AI. For the sharpest analysis on forces driving the markets and the economy, count on exchanges between the leading minds at Goldman Sachs. New episodes every week. Listen now. Here's your money briefing for Wednesday, October 2nd. I'm JR Whalen for The Wall Street Journal. For many salaried employees, their pay is all but guaranteed.

They get the same amount in their paycheck every two weeks. But many companies are changing up that formula and building incentive, performance-based pay into workers' compensation. A big reason why companies are doing this with more jobs is over the last several years, payroll costs have really gone up. Wages were generally flat or rising only a little bit for the better part of a decade and then with the pandemic they really did jump up and so companies are being more mindful certainly of those costs. How is this change going over with workers?

We'll talk to WSJ Careers and Workplace Deputy Bureau Chief Vanessa Fuhrmans after the break. How do stop losses work on Kraken? Let's say I have a birthday party on Wednesday night, but an important meeting Thursday morning. So, Sensible Me pre-vokes a taxi for 10 p.m. with alerts. Voila! I won't be getting carried away and staying out till 2. That's Stop Loss Orders on Kraken, an easy way to plan ahead. Go to kraken.com and see what crypto can be. Some companies are making a part of salaried workers' pay contingent on completing certain goals.

Wall Street Journal editor Vanessa Furmans joins me. Vanessa, what type of workers are we talking about here? Well, where you're seeing this mostly is around roles that are close to the sales process. Roles like sales engineers, people who help actually put together the presentations and the pitches for sales meetings. But also a big part of this is customer success managers or after sales support. To better ensure companies or clients are renewing with those companies. But we're also seeing some companies are doing this with a broader array of roles,

everyone from accountants to procurement officers to HR executives. So this is a lot more than just salespeople where this type of pay plan is more traditional. That's right, yes. Outside the white collar workforce, people who are waiters work for tips. So a lot of professions out there, this is not something new for, but you do see more

companies in general when it comes to white collar workers building in shorter term incentives that are tied to some performance metrics. And the idea is to keep workers engaged in their jobs and aligned with the company's broader business purposes. How does this work? How much of a worker's pay would be based on incentives? Well, it really depends. For instance, a company I spoke with, Walkme, they have most of their workforce on this

kind of quarterly incentive plan. And the percentage that is the bonus or the variable part of their pay really depends on how close they are to say the customer revenue generation. So it could range anywhere from 8% to well for top executives quite high percentage. The companies that are doing this, are they overhauling the way they pay their employees or are they changing some roles over to the incentive-based pay plan? I wouldn't say it's a blanket overhaul except in Walkme's situation, they've been doing this pretty much since the company started.

They really wanted to have workers be very focused in their day-to-day jobs in furthering the company's strategic objectives. So they built a pay system this way. For other companies, it's really transitioning specific teams onto these kind of roles here and there. Employees are used to getting a regular salary for a 40-hour work week. How is this going over? It really depends on the way these incentive plans are structured. A lot of employees see these as opportunities to make more money.

There's a lot of rich upside if you overshoot your targets and then limited downside if you fall short. I spoke to employees who most of their quarters were not only making their entire bonus but a percentage over the bonus. Other people who feel like, oh, they're not getting such a great base salary to begin with, they might feel like you're trying to say I'm getting paid this, but I'm really getting paid that. And I've spoken to job hunters who have run into that where they thought their base salary

was going to be a certain amount when they got the final offer. It came back that 10% of that was actually a variable bonus. And so if a company wants to make some of your pay based on performance, do you have any room to negotiate? Yes. The metrics are very finite metrics based on, say, renewal rates or depending on the role, it can be quite a concrete quantitative measure like

that. But in a lot of cases, the individual is sitting down with their manager ahead of the quarter and discussing, okay, here are the goals we want to work on and what we want to accomplish this quarter. So there is discussion and negotiation over those metrics. What you don't want to have, of course course is where you reached your goal for that quarter, your boss says, oh, I'm not so sure. You don't want any sort of like wiggle room in that regard. That's where employee advocates certainly say you should know exactly what's going into

these performance metrics and how much they are in your control to make. This type of pay package is new to a lot of people who are used to salaries. Do companies have to explain this in the job listings? Most companies are explaining it by saying this offers a quarterly bonus. It's incumbent then upon both the job seeker and certainly the hiring manager, the recruiter to be very explicit about what their expectations are and how the pay is exactly going to be laid out. A big reason why companies are doing this with more jobs is over the last several years,

payroll costs have really gone up. Wages were generally flat or rising only a little bit for the better part of a decade, and then with the pandemic, they really did jump up. And so companies are being more mindful certainly of those costs. That's WSJ's Vanessa Firmans and that's it for your money briefing. We'll be back tomorrow with WSJ's Veronica Dagger to discuss why the recent decline in mortgage rates hasn't moved the needle for many prospective home buyers.

This episode was produced by Zoe Kolkin with supervising producer Melanie Roy and deputy editor Chris Zinsley. I'm JR Whalen for The Wall Street Journal. Thanks for listening.