Lessons Learned with the Company Bonus

A perspective on incentives, retention, and long-term alignment.

Introduction: When Bonuses Become Expected

Many of our clients have expressed concerns that their current bonuses have become (or are becoming) an expectation of compensation rather than a motivator of results.  Bonuses have been paid for so long that companies feel held hostage to that annual or semi-annual payment.  Employees have adjusted their lifestyles around these payments.

One could argue that the bonus has become base compensation, just paid at a different time of the year.  Ask any company that pays a meaningful bonus to key players when their greatest resignation date is, and they’re likely to answer, “Right after we paid the bonus.”  That’s a painful check for any company to see walk out the door.

Economic Headwinds Are Forcing a Reassessment

In the recently published NFP 2025 Executive Benefits Trends Report, respondents shared concerns about economic headwinds and their impact on how companies are approaching their compensation packages. 52% of those surveyed expect to keep their comp plans flat due to overwhelming concerns about economic headwinds.  However, many of these companies are revisiting their approach to compensation, emphasizing offerings with measurable, long‑term impact rather than simply “doing more.”

Deloitte CFO Signals™ reports in July of 2025 that the top external risk is the economy (53%), while the top internal risks are talent availability (46%) and cost management (45%). In other words, the day of the large bonus, because “That’s what we’ve been doing for so long,” should be getting a revisit.

Where are you in this process?

The Risks of Change — and Why It’s Not Simple

This is a difficult position to be in, with a combination of headwinds, limited talent availability, rising costs, and expected bonuses to be paid.

So, is the incentive-based consumable bonus valuable? Yes. 

Do companies need to revisit their comp package for key players moving forward?  Also, yes.

What Not To Do

How should one address this?  First, let’s talk about what not to do.  It’s not as easy as reducing or discontinuing the bonus.  Making this change is not an overnight process, and things like compensation benchmarking do not matter to employees who are mission-critical to the organization.  While it’s helpful for you to know what your peers are paying in the marketplace, this is not a reason in and of itself for making substantial reductions to compensation.  If handled incorrectly, this could be a major disruptor, especially for those who have adjusted their lifestyles around these bonuses.

Moving Toward Long-Term Alignment

Consider slowing the pace of the bonus and aligning comp over multiple years to be measured by key performance indicators.  It’s time to explore potential solutions that can be implemented to reward performance, retain key players to the organization, and align them to long-term success.  Many in our industry use the term “recruit, reward, and retain”. 

We expand on this by one word, which we think plays a critical role in the total formula.  Recruit, Reward, Retain, and Align.  It’s important to focus on designing plans that don’t just provide a consumable enhancement to lifestyle but also provide a path to build meaningful wealth for participants while tying them to the long-term success of the business.  Thinking about selling or transitioning your business in the next five years?  It’s even more important to have these solutions in place before, during, and after the transaction.

Potential Structures to Consider

Here are a few options that can be custom-tailored for your business.  Keep in mind the ultimate approach may include a combination of solutions to achieve what you’re looking for and doesn’t have to only provide long-term retirement benefits.  In fact, we would encourage you not to focus only on the retirement time horizon.

Actual ownership: I put this at the top because it’s the most common consideration, but one of the last of many solutions we typically recommend.  Even a minority stake in the business has layers of complexity to consider before making this move.

Deferred Bonus Plans: An exemption to the 409A rules, this is a “delayed bonus” that provides a benefit payment in the future, but the participant must be present and employed to receive it.

Interest on profits: Within the right business entity, this is a unique form of ownership structure that provides tax efficiency for the participant as well.

Supplemental Executive Retirement Plans (SERP): A traditional company-funded 409A deferred comp plan with creative vesting and payment triggers.

Phantom Equity and Stock Appreciation Rights: An alternative to ownership, also in the deferred compensation family, but with a different growth engine to focus on alignment with the organization.

Employee Stock Ownership Plan (ESOP): A solution for a larger goal in mind, by creating a tax efficient buyer for your business and must include all eligible employees.

Closing Perspective

n summary, there’s a right and a wrong way to implement change to compensation plans.  If done well, layering solutions beyond the basic consumable bonus can be a force multiplier for building a successful business by recruiting, rewarding, and retaining top talent while also aligning and creating a culture of ownership.

Where does our team fit in? Consider us as your guide through these considerations, by helping you to explore options for design, implementation, management, and informal funding.

Advisory perspectives on executive compensation, alignment, and long-term value creation.